Covid-19 loans come with strings attached

After the outbreak of the Covid-19 pandemic, many have reconciled to the reality of pay cuts. For those who are short on liquidity, banks are offering Covid-19 personal loans. While the loans appear attractive, they may not be suitable for all, that is particularly so if you are already in a financial strain. Here is what you should know.

Basics

As the name implies, Covid-19 loans are a type of personal loan offered by major banks, including Punjab National Bank (PNB), Bank of India, Bank of Baroda (BoB), Bank of Maharashtra and Union Bank of India.

The maximum loan amount is ₹3-5 lakh. One of the main advantages of Covid 19 personal loan is the lower interest rate than on regular personal loans or credit cards dues.

The interest rate ranges 7-10 per cent, lower than the regular personal loan rate of 9-24 per cent.

The eligibility for Covid-19 loan differs from the same for other loans and varies with each bank.

While some offer Covid-19 personal loans to both individuals and pensioners with moratorium for three months (during which time interest shall be calculated), others offer moratorium only on their plain-vanilla personal loans.

The Covid loan offer, in most banks, is valid up to June 30.

Most banks expect the borrower to have good credit score, preferably over 650 (CIBIL) for getting Covid-19 personal loans.

The repayment period ranges from 36 to 60 months.

Eligibility

For now, Covid-19 loans are offered only to existing customers. He/she should either have a salary account or an existing loan account with the bank. In case of pensioners, they should be drawing pension from the bank.

For instance, PNB offers a loan, PNB Sahyog COVID 19, to all salaried or permanent employees of Central/State governments and other companies/institutions having salary account with PNB (including account holders of Oriental Bank of Commerce and United Bank of India due to their merger with PNB). Those drawing pension from PNB are also eligible to get a Covid-19 loan — PNB Aabhar Rin COVID 19.

BoB offers Covid-19 loan for its customers who have an existing home loan or loan against property and have maintained a minimum of six months’ relationship with the bank on this front.

Similarly, customers who have auto loan are eligible for the loan with BoB. Do keep in mind that BoB should have disbursed the entire amount of the original loan (home/car) and you should have repaid a minimum of three instalments of the existing loan before going for the Covid loan.

Loan amount

The maximum loan amount offered under Covid-19 personal loan is ₹5 lakh, though some banks offer only up to ₹3 lakh. Since this loan is mostly offered to salaried individuals and pensioners, the quantum of loan would vary depending on the monthly income.

For instance, for customers of Bank of Maharashtra, it is 10 times the latest monthly gross salary income, subject to a maximum loan limit of ₹3 lakh. PNB, too, offers loan up to ₹3 lakh provided the minimum net take-home salary is ₹15,000 in metro/urban cities and ₹10,000 in semi-urban and rural regions.

In the case of pensioners, the maximum loan amount under this category of loan is ₹2 lakh or thrice the average of last six months’ pension credited in the account, whichever is lower. This is provided the pensioner earns a gross monthly pension of ₹ 30,000.

Do keep in mind that the loan amount will depend on the overall loan limit of the borrower.

Other charges

When you apply for any loan, it comes with a few charges, including processing fee, documentation charges, inspection charges and pre/part payment charges. All these charges are nil with Covid-19 personal loans offered by banks.

However, some banks do charge a processing fee.

BoB, for instance, charges ₹500 (excluding GST) as unified processing fee.

Margin requirements, under this loan category, too, are nil.

What should you do?

If you already have on-going loans such as home, automobile or education loans, and given that the future is uncertain and companies are resorting to pay cuts, going for another loan, even if it comes with attractive frills, isn’t advisable. Also, if you are already under financial strain, it is better to avoid taking fresh loans.

Instead, dip into your savings to tide over what may be a temporary liquidity crunch.