Consumer Loans are a type of personal loan that is typically used to buy electronic devices and domestic appliances such as smartphones, televisions, PlayStations, home theatre systems, laptops, cameras, washing machines, modular kitchens, and other similar items. This loan kind is often available for amounts ranging from Rs. 10,000 to Rs. 15 lakh. Consumer loans typically have a 0% interest rate or No Cost EMI and can be repaid in less than a few weeks to as late as 36 months.
A consumer loan’s interest rate may differ between lenders. Some significant aspects that may influence the interest rate charged by a lender include the cost of the item being purchased (i.e. loan amount) as well as the individual applicant’s profile, such as credit score, employment type, desired term, and so on.
The following are some significant characteristics of a consumer durable loan:
Note: This is just general information regarding the eligibility criteria. It may differ from one lender to another.
A consumer loan is a type of financing that can be used to buy consumer durable products including domestic appliances, electronics, and other similar items. The most common type of consumer durable loan is known as an Installment Loan. This sort of personal loan is distinct from an EMI conversion using a credit card or debit card in that no card is used to make the transaction and/or establish an installment-based payment schedule.
The following are the details of an instalment loan and its different subtypes:
Installment Loans: The most prevalent type of consumer loan, installment loans are paid back in weekly, fortnightly, monthly, or bi-monthly installments according to a defined schedule. The interest rate on these installments may be set or fluctuate over time. Furthermore, security or collateral may or may not be required for these consumer loans. Installment loans are classified into the following categories based on these characteristics:
Fixed-rate consumer loan: The majority of consumer loans available to borrowers are fixed-rate loans, which work in the same way as other personal loan interest rates. These consumer loans carry the same interest rate throughout the loan term, as the name implies.
Variable-rate consumer durable loan: The interest rate charged on the outstanding balance of a variable rate consumer loan fluctuates with market interest rates. As a result, your interest payments may differ. However, the interest rate on these loans is usually limited in terms of how high or low it can be.
Secured consumer loans: Secured loans are ones that are backed by assets as collateral. In India, secured consumer loans are typically secured by the object being purchased. Some banks also offer consumer durable loans backed by other assets such as fixed deposits, RBI bonds, gold jewelry, life insurance policies, and so forth. As a result, secured consumer durable loan interest rates are typically cheaper. If you fail to repay the loan for any reason, the lender has the right to seize your collateral to make up the loss.
Unsecured consumer loans: The most prevalent type of consumer loan is an unsecured consumer durable loan. The borrower is not required to submit any. Unsecured loans may have higher interest rates than secured loans. Most banks and financial organisations, on the other hand, offer consumer durable loans at rates that are competitive with personal loan interest rates. You may be eligible for special offers with no or low processing fees and a 0% effective interest rate in select instances, such as during festivals.
Apart from interest charges, there may be other fees and charges that apply to a consumer loan. Some of these are covered below:
Processing Fees: Processing fees cover the administrative fees and charges associated with the disbursement of a personal loan. The processing charge typically ranges from 0% to 6% of the loan amount approved.
Late Payment Fees: If you miss an EMI payment, you must pay these fees (which are usually a fixed amount) in addition to the owed EMI amount.
Charges: If you miss an EMI payment because the account linked to the post-dated cheque is either low on funds or has been canceled, you will be charged cheque bounce charges. It is usually a one-time fee of roughly Rs. 500.
Prepayment/Foreclosure Charges: Prepayment entails paying a sum greater than the EMI amount. However, foreclosure occurs when a debt is totally paid off before the repayment period ends. Charges called as foreclosure/prepayment charges are frequently associated with this entire prepayment. These typically range between 0% and 6% of the principal amount prepaid, plus any relevant taxes.
Mentioned below are some documents that a lender needs when you apply for a consumer loan:
– For Salaried Individuals: Salary Slips/ Bank Account Statement/ Form 16.
– For Self Employed Individuals: Bank Account Statement/ Previous Year Income Tax Return (ITR)/ P&L Statement and Balance Sheet.
Although some lenders offer consumer durable loans with no interest, others do charge interest. The interest rate charged by a lender varies not just by the financial institution, but also by the applicant’s profile. A few major elements that influence an individual’s interest rate are listed below:
Credit Score: Your credit score is a three-digit numeric summary of your credit report/credit history that runs between 300 and 900. A credit score of 900 or higher (750 or higher in the case of CIBIL) makes it easier to get a consumer durable loan because it demonstrates more creditworthiness. It also allows you to get it on better terms, such as a lower interest rate.
Loan Amount: A higher loan amount usually means a higher interest rate for the applicant. This is because larger loan amounts typically result in greater EMI payments, which increases the lender’s risk of default.
Loan Tenure: Longer repayment terms are frequently associated with higher interest rates and vice versa.
Current Outstanding Debt: In the case of applicants with substantial existing debt, a higher rate of interest may be levied on consumer loans since the lender perceives a larger chance of default.