Financial Daily from THE HINDU group of publications
Sunday, May 02, 2004
Financial Daily from THE HINDU group of publications Sunday, May 02, 2004 |
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Investment World
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Foreign Banks Money & Banking - Credit Market Columns - Banking Products ABN Amro's CreditLine Shanthi Venkataraman
In an emergency, there may be no time to apply for a personal loan. And while a credit card can serve the purpose, it certainly is an expensive alternative. An overdraft would be a good option, but that is a facility that is normally offered only to businessmen, is it not? Well, not any more. CreditLine, an ABN Amro Bank product, now offers a personal loan in the form of an overdraft facility. Standard Chartered Bank also offers a similar product called Smart Credit. The idea is to provide the customer with a ready loan facility with no fixed EMIs to worry about, thus giving you the freedom to make your payments whenever and however you want to.
The product
You can enjoy a line of credit starting from Rs 25,000 to Rs 3,00,000, the limit being subject to the bank's qualifying criteria. A multi-city chequebook is provided, which you can use to draw on the overdraft facility. The mechanism is similar to that of a credit card. The scheme comes at a fee of Rs 1,250, of which, Rs 750 is an upfront commitment charge. All you have to do is pay 5 per cent of your outstanding each month and roll over the rest. And while you pay high interest on your credit card, this facility is less expensive, at an effective rate of about 21 per cent per annum.
More means less
If 21 per cent seems a tad on the higher side, then consider the slab-based reducing interest rate plan that is also offered. Under this scheme, if you borrow up to Rs 75,000 you pay an interest of 20 per cent. But for sums of Rs 75,000-1,25,000 your interest would only be 18.50 per cent, and so on. You can save further if you link your savings account with the bank to your CreditLine account. A lot of hassle can be avoided by directing the bank to sweep funds from your savings account into your CreditLine account to make monthly payments. You can also define a threshold and direct the bank to sweep any amount exceeding that limit to your CreditLine account. This may automatically take care of your outstanding balance and there are no prepayment charges either.
Suitability
If you go for the slab-based plan and link your savings account to the CreditLine account, the effective interest rate can be reduced by a fair bit. But borrowing through the Creditline would still be more expensive than a personal loan. You might also want to check out the facility offered by Standard Chartered bank before making a decision. If you need cash to fund any planned expense, you are better off taking a personal loan. You can quite easily plan your purchases in advance, apply for a loan, wait for it to come through and make your purchase, especially as most banks today claim to process personal loans within 48 hours. But when you have to make an unanticipated expenditure, this facility could be a better alternative.
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