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Covid loans are cheaper, but don’t go overboard

Bavadharini KS BL Research Bureau | Updated on June 19, 2021

These loans carry interest rates that are lower than a regular personal loan

For those short on liquidity, banks were offering Covid-19 personal loan last year with slightly lower interest rates than regular personal loans. With an aggressive second wave of infections across the country, some banks including SBI, Bank of Baroda have introduced personal loans specifically for the treatment of Covid-19. While these loans serve you in time of need and could come at an attractive interest rate, think twice before you apply, particularly when your financials are already stretched.

What’s offered

Since the outbreak of the virus in March last year, a few banks including PNB, SBI, Bank of India (BoI), Union Bank of India and Bank of Baroda had introduced Covid-19 personal loans to help you tide over the financial strain due to unexpected shortage of funds. While the Covid loan offer was initially only up to June 30 of last year, almost all of whom had introduced these kinds of loans, have extended the timelines. However, the objectives of most of these loans have changed now and it now available for treatment related to Covid. That is, at the time of availing the Covid personal loan, the borrower has to offer an undertaking that the funds are meant to cover the treatment expenses. For instance, PNB’s PNB Sahyog RIN Covid is a personal loan specifically for Covid treatment of self or family members infected on or after April 1, 2021.

SBI too offers Covid personal loan specifically for treating the infection for self or for family on or after April 1, 2021. It is available for SBI’s customers including salaried, non-salaried and pensioners, with no processing fee, security, and foreclosure charges. The minimum loan amount is ₹25,000 and maximum is ₹5 lakh.

The eligibility criteria for Covid personal loan also vary with each bank. For instance, BoI’s Covid-19 personal loanis available for customers having a salary account with the BoI, all existing housing loan customers and all existing standard personal loan customers.

In addition to personal loan for salaried/self-employed, a few banks offer Covid-19 pension loan solely for pensioners. For instance, PNB offers PNB Aabhar Rin COVID for treatment of Covid for self or family members (on or after April 1, 2021) and can be availed by all types of pensioners drawing pension through PNB branches. Bank of India too offers Covid-19 pensioner loan for regular pensioners, family pensioners and other pensioners who maintains their account with BoI.

The eligible loan amount here depends on the age and pension drawn. For instance, in case of BoI, the minimum loan amount is 10 times of last drawn pension subject to maximum of ₹2 lakh in case of regular pensioners (₹75,000 in case of family pensioners).

In case of PNB, the eligible loan amount is six times the average of last 6 months pension credited in the account subject to maximum of ₹10 lakh (for age up to 70 years) and ₹7.5 lakh for those aged between 70 and 75 years, (₹5 lakh for age 75 years and above).

Lower rates

One of the key deciding criteria for any loans will be interest rates. For Covid personal loans, the interest rates ranges between 6.85 and 8.5 per cent, lower than a regular personal loan (8-14 per cent interest rates). For instance, PNB charges 8.5 per cent which is repo linked lending rate (RLLR) of 6.8 per cent plus 1.7 per cent. On other hand, Union Bank of India charges interest at a fixed rate of 8.5 per cent.

The processing fee, margin requirements and other charges are either nil or low. For instance, BoI has zero processing fee and nil margin requirements, while BoB for its Covidcare Personal loan, charges 1 per cent of loan amount as processing fee for loan about ₹2 lakh (for loan amount ₹2 lakh, there is no processing fee). In the case of a regular personal loan with BoI and BoB, the processing fee works out up to 2 per cent (up to ₹10,000).

The repayment tenure for Covid-19 personal loan too varies with banks between 3 and 5 years. For instance SBI’s Covid personal loan can be repaid within 60 months (including 3 months of moratorium for which interest will be charged).

While the Covid-19 loans appear attractive, be careful before you sign up, particularly if you already have other ongoing loans. Instead, dip into your savings to tide over what may be a temporary liquidity crunch. Unless you are confident of steady cash-flows in the future, it is better to avoid taking fresh loans.

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

Published on June 19, 2021

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