[sbinews] Banks finance Personal Loans - Wear now Pay Later

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Wed, 24 Dec 2003 10:53:59 +0500

Wear now, pay later

Banks are aggressively targeting the retail consumer, which has led to a 
proliferation of different kinds of offerings on the loan front. Taking a loan 
has become quite common for housing, cars, consumer durables and the list is 
expanding. And now, a loan can also be availed of for the purpose of buying 

Currently gold prices are in a midst of a rally and have been touching new 
highs after crossing the Rs 6,000 per 10 gm mark. And with the wedding season 
around the corner, the common dilemma facing women is that of making 
arrangements for purchasing wedding jewellery within their existing budgets. 
Until a few months back, you could either borrow on your credit card or take a 
personal loan paying a high rate of interest to fund your wedding purchases. 
But recently, banks have carved out a separate category where you can take a 
loan to buy jewellery, and that too at a lower rate of interest compared with 
personal loans or credit card interest. 

As traditionally south Indians have had a great affinity for gold, these loans 
are largely offered by south-based banks. Currently Corporation Bank, State 
Bank of Hyderabad (SBH) and Karnataka Bank offer such kind of loans. These 
loans are given to working women as well as housewives. In case of housewives, 
usually, the husband will have to act as a guarantor. 

Let’s take a look at the details of these loans. The minimum amount of loan 
that you can take is Rs 10,000 to Rs 20,000 while the maximum can vary between 
Rs 1 lakh to Rs 3 lakh, depending on the bank from whom you take the loan. 
Requirements for security or guarantor vary from bank to bank. In the case of 
Corporation Bank, if you are employed, you will have to give an undertaking 
from your employer to deduct monthly equal monthly instalments (EMIs). 
Additionally, as a collateral, you will need to provide tangible securities 
like NSC, KVP... 

In case of non-working women, collaterals will have to be provided. For SBH, 
working women must provide post-dated cheques or an undertaking similar to that 
of Corporation Bank. As for housewives, guarantee of the husband would have to 
be provided. Karnataka Bank, in turn, calls for pledge of ornaments in case 
housewives take the loan. No security requirement is prescribed for working 

Coming to the margins, while SBH has no margin requirement, Corporation Bank 
has a margin requirement of 15% of cost of jewellery. In case of Karnataka 
Bank, a margin of 30% will be kept for jewellery and 50% for gold bars. 

The loan also provides for easy repayment by way of EMI. The repayment period 
is lowest in case of SBH at 36 months, Karnataka Bank offers repayment up to 84 
months and Corporation Bank allows repayment in 60 months. The next most 
important aspect is the interest rates. Corporation Bank offers the loan at an 
interest rate of 11%. However, if you are unable to provide any security, the 
interest will be jacked up to 12.25%. If you take a loan from SBH, you will pay 
interest at 13% per annum while in case of Karnataka Bank, it would be 11%. But 
apart from the interest rate, what you must look out for are service charges or 
processing fees. While there are no such charges in case of SBH and Karnataka 
Bank, Corporation Bank charges 0.5% of loan amount on loans exceeding Rs 50,000 
as service charges. 

Suppose you have to purchase jewellery of say Rs 50,000. In case there are 
margin requirements, say at 15%, you will get a loan for Rs 42,500. Suppose you 
decide to repay the loan in 36 months, at an interest rate of 11%, you will 
have to pay an EMI of Rs 1,391. If you repay over 48 months, the EMI would work 
out to Rs 1,098. The longer the repayment term, the lesser will be the EMI. But 
at the same time, the total interest burden would increase. For instance, for a 
36-month loan, the total outflow works out to Rs 50,076 while in case of a 
48-month loan, the total outflow works out to Rs 52,704. So by paying an extra 
EMI of around Rs 300 per month, you can save on interest costs of up to Rs 
2,628. This however would depend on your capacity to repay the loan. 

With this kind of loan available, as such there is not need to press the panic 
button if you run short of funds to buy that prized wedding ring. Help is just 
a call away. But one has to remember to get their calculations right

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