No need to press the panic button. You can still ensure your child has the dream wedding you envisioned.
Rajeev Mahajan | May 15, 2018 08:27 AM IST | Source: Moneycontrol.com
Preparing for your child’s wedding? You may want the nuptials to be fabulous – with a dreamy ambiance, excellent food and scented flowers. While Indian parents invariably create a decent corpus for the auspicious occasion, there may emerge a scenario when the budget spirals out of control and resources are just not enough.
No need to press the panic button just yet. You can still ensure your child has the dream wedding you envisioned. Read on for some easy options that can help you in organise the funds needed for the special day.
A personal loan is an excellent way to defray expenses without fretting over offering collateral. Most financial institutions, including nationalised banks and NBFCs, offer personal loans. Since it is unsecured in nature, the interest rate is a tad steep and ranges between 14 percent and 24 percent a year. There are, however, a few criterions for sanction, chiefly your monthly income.
Lenders also review your current financial health, monthly commitments, debt payments, assets, existing equated monthly instalments (EMIs) and unsettled loans. They look into your credit report and score. Simply put, lender needs assurance that you have the resources for loan repayment.
Loan against property
This is another option that provides you a financial buffer against unexpected wedding costs. You can pledge residential/commercial property or a plot of land at its prevailing market value to avail funding from a bank.
The approval for loan against property is straightforward, provided all valid documents are in place. Since it is a secured loan, the rate of interest is affordable as the lender can recover the borrowed amount by selling the mortgaged property in case of default.
One can also avoid a cash crunch by opting for a wedding loan. These loans are granted by many financial establishments under the personal loan category. A wedding loan is sanctioned on the basis of factors like your employment status, net monthly income, credit score, past loan history and your ability to pay back.
Given that no guarantor is required, the interest rates are high. Also, the tenure option is flexible. You can avail the pre-payment facility and settle the outstanding balance amount before the due date, thereby saving on the high interest rate.
Loan against securities
Another way to ease the financial burden of your child’s wedding is by opting for a secured loan. Banks and financial institutes offer assistance against mortgage of financial assets: term deposits, savings certificates or life insurance policies. The amount sanctioned depends on the value of the collateral. Since lenders have the security of retrieving their investment in the event of an interest rate default, the interest rate is low around 12-15 percent annually. Also, unsecured loans don’t require much documentation.
P2P lending platform
Do you have a less favourable CIBIL score? You may want to consider a peer-to-peer (P2P) lending platform to raise money for essential wedding expenses. The P2P route though still in infancy is being viewed as an attractive alternative to personal loans.
The online lending phenomenon is uncomplicated and allows you to borrow money directly from investors at attractive rates on the basis of your creditworthiness. What’s more, the entire funding procedure is accomplished with speed and without too much paperwork.
Looking for another alternative to bail you out from a stressful situation? Adopt the crowd-funding path to offset some of the rising wedding costs. It is an innovative measure that can help raise funds quickly to cover the shortfall. In recent years, crowdfunding websites have mushroomed in large numbers.
The concept is simple. Just create a compelling page online along with a target amount and then share the link with close friends, neighbours, relatives, co-workers, among others. You might be surprised at the number of contributions that come towards the wedding kitty.
Borrow from family members
Tried all the above options in vain and still running short? Seek the support of close family members to tide over the wedding expenses that have suddenly emerged. But before taking this step make sure you have a repayment plan in place after the big day.
This is important since loans taken from loved ones are interest-free and flexible with no signed agreement. The best way is to hand over a promissory note with the assurance that the borrowed amount will be reimbursed by a specific date.
Exploring the above funding options will help you in planning your child’s wedding without any financial constraints. It is important to exercise restraint and not exceed the wedding budget drastically, so that the borrowings do not lead to financial distress. At the end of the day, one must remember that the loan acquired is a debt that has to be repaid.
The writer is Co-Founder, CEO & Director of Antworks Money
Ashwini Kumar Sharma | MON, JUN 15 2015. 01 26 AM IST | Live Mint
Use and possession of the secured assets differs depending upon the type of loan
Loans have become an integral part of our lives. Most people either service a home loan, a car loan, or a personal loan, or a combination of these. According to the Reserve Bank of India (RBI), as on 17 April 2015, total outstanding loans to individuals by banks was to the tune of Rs.11.77 trillion. These loans include those taken for consumer durables, housing, auto, education, credit card outstanding, advance against fixed deposits, shares and bonds. Most of these are secured loans (given against an asset). However, use and possession of the secured assets differs depending upon the type of loan.
This is the oldest form of a loan. Under this, the lender takes any asset as security in her custody or possession when giving the loan to the borrower. In case of default by the borrower, she has the right to sell the asset under her possession to recover the outstanding dues (principal along with interest). Common examples of loans by pledging assets in current times are gold loans and loans against securities such as shares, mutual funds or bonds. Typically, banks provide loans up to 50% of the value of approved securities.
Under this method, the lender provides a loan against movable assets. For instance, a vehicle loan (for a car, two-wheeler or any other vehicle). When you borrow from a bank to buy a car, the car gets hypothecated to the bank. The vehicle that is being hypothecated to the bank will remain in the possession and use of the borrower, but in case of default, the lender has the right to seize the vehicle and sell it to recover the unpaid loan amount. The total outstanding vehicle loan to individuals, as on 17 April, was Rs.1.26 trillion, according to RBI.
Another example of hypothecation loan is loan against goods or inventory (stock) and debtors. The borrower hypothecates the stock that she has to the lender and borrows a certain percentage of its value. The borrower has the right to trade the stock, but needs to maintain the minimum agreed value of stock. If the lender finds that the value of stock is less than the agreed value, it has the right to take the stock as pledge till the borrower pays the outstanding dues.
This is an agreement in which the lender provides a loan against immovable assets. A common example is a home loan. Of the total loan to individuals by banks, about 55% (Rs.6.42 trillion) is home loans. Just like hypothecation loan, here, too, the asset that is mortgaged to the lender remains in the possession and use of the borrower. But in case of a default or non-payment of estimated monthly instalment, the lender, say, a bank, can seize the property. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act), 2002, allows it to do so. If a borrower fails to repay her home loan, the bank can auction the property to recover the outstanding amount.
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