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- Decode the world of Personal Loans
Decode the world of Personal Loans
1. For what purposes can you use a personal loan?
Correct option is D - A personal loan is one of the easiest loans to avail. Since it is an unsecured loan there is minimum documentation and the processing is fast. It can be used for any personal or business purpose. There is no restriction on the end use, except that it cannot be used for any kind of speculation or investing in the stock market.
2. What is bullet repayment of a loan?
Correct option is A - A bullet repayment is a lump sum payment made for the entire loan amount, usually at the end of the loan tenure. It is usually allowed in the case of gold loans. Since these are short-term loans, one of the repayment options is to make a single payment at the end of the tenure and close the loan.
3. What is debt consolidation?
Correct option is C - If you are simultaneously repaying more than one personal loan or have outstanding balances on more than one credit card, and are finding it difficult to repay them, you can avail of a personal loan and repay the existing loans. Then you can repay the new personal gradually. This will make it easier for you to keep track of your repayments and also improve your credit score over time.
4. What is the balance transfer of a loan?
Correct option is B - If you find a bank offering you a loan at a lower interest rate than your existing loan, you can transfer the balance amount of your loan to that bank. This is called a balance transfer of the loan. It can be done for home loans, personal loans, auto loans and credit cards. Banks charge a fee for balance transfers. A balance transfer can also be done for a higher top-up loan amount or for better services.
5. What is a top-up loan?
Correct option is A - If you have an existing home loan and you take an additional amount as a home loan, it is called a top-up home loan. Similarly, you can take a top-up personal loan as well. Banks usually offer such loans only to existing customers and provided you have a good repayment track record. It saves you the time spent on paperwork and documentation since you are an existing customer of the bank.
6. Is a co-borrower the same as a guarantor in a loan?
The bank may ask for a guarantor if they are not convinced about the repaying capacity of the primary borrower. The guarantor is not expected to repay the loan unless the primary borrower defaults. But in case the primary borrower defaults, then the guarantor is expected to repay the loan. In such a situation, his credit score too will be adversely impacted, along with that of the primary borrower.
7. What is loan settlement?
Correct option is B - A loan settlement is when you request the bank to close your loan by paying a lesser amount than the entire repayment amount because you are under financial stress. The bank may allow it if the reason is genuine and you are facing an emergency. The bank will then issue you a closure certificate and close the loan in its books. But this can pull down your credit score because a loan settlement is not considered creditworthy behaviour.
8. What is loan foreclosure?
Correct option is A - Foreclosure is when you pre-pay your loan entirely before the end of the term and close the loan. In the case of home loans, there is no penalty for foreclosure. But in the case of other loans, some banks may charge a penalty if you close the loan before maturity. Hence, before you close your loan, calculate how much you can save by doing so. Loan foreclosure will not affect your credit score adversely.
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This content is intended solely for informational purposes. The views expressed in this content are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this content.
