A few days ago, I watched an interesting TV commercial for a personal loan product from Bajaj Finserv. The product is Bajaj Finserv Flexi Loan. Let’s find out more about the product.
How Does the Bajaj Finserv Flexi Loan Work?
Think of it as a credit line. You can withdraw/borrow or repay as many times as you want. The only limitation is that you should not breach the credit limit. For instance, you get a loan sanction for Rs 10 lacs. You borrow/withdraw Rs 6 lacs. Over the next few months, you repay the entire amount. Subsequently, you borrow another Rs 8 lacs from the same loan account.
Here are a few important features of the product:
- Interest rate is charged on the amount withdrawn (and not on the sanctioned amount).
- To keep the loan regular, you need to pay only the interest portion.
- You can repay/pre-pay the principal separately whenever you want.
- There are no prepayment charges.
- As I understand, the maximum loan tenure is 6 years. No such information on the website. That’s my inference looking at the sample loan agreement.
What Are the Beneficial Features?
You have liquidity at your disposal. It is fair to assume that withdrawals (once the loan is sanctioned) will be quite hassle free. Moreover, since it is a credit line, you do not have to approach the credit institution every time you need the money (fresh loan/withdrawal).
You get flexibility in loan repayment. Under this product, you have an option to simply keep paying the interest. Principal can be paid as per your discretion. Now, this provides flexibility. If you are going for a personal loan to tide over short term cash flow mismatch, this can offer you much needed relief. You don’t have to worry about high EMIs from the first month itself. By the way, something very similar happens in loans against LIC policies too.
Sample this. Under a regular personal loan of Rs 10 lacs for 3 years at 15% p.a., you will have to pay an EMI of Rs 34,665. Under Bajaj Finserv Flexi Loan product, you need to pay interest-only EMI of only Rs 12,500 per month. Clearly, a much lower amount. However, you must understand, under the first method (a regular personal loan), your outstanding principal amount is going down every month. Nothing of such sort in Bajaj Finserv Loan. You will end up paying higher absolute interest amount in case of Bajaj Finserv Flexi Loan.
What Are the Things You Must Watch out for before Signing up for Bajaj Finserv Flexi Loan?
Unfortunately, many important pieces of information about the product is missing on the product page on Bajaj Finserv. More often than not, this is bad news for borrowers. I do not want to indulge in speculation but there are still a few aspects that you should be mindful of before signing up.
- Bajaj Finserv Flexi Loan is, after all, a personal loan product. The rate of interest is likely to be quite high. A well made TV commercial does not change that.
- There are times when it is foolish to take a personal loan. Take such a loan only when needed.
- In another YouTube video on the product by Bajaj Finserv, the quantum of credit line (loan amount) was linked to your credit score. Higher your credit rating/score, higher the credit line you can get. Sounds fair.
- Interest-only EMI sounds good and provides flexibility in loan repayment. However, at the same time, you end up paying more in terms of absolute interest.
- The sample loan agreement makes mention of a Maintenance Charge for a flexi loan. As I understand, the charge is an absolute charge and not a percentage of your loan amount.
- Every loan has a tenure. It is not that you can keep paying only the interest for eternity. You need to repay the principal amount before the loan tenure ends.
- Though the product works like a credit line from which you can withdraw and repay as many times as you want, I read a customer complaint, in which he mentioned that the entire amount was disbursed upfront (and not based on his requirement). He also mentioned about high processing charges and a bundled insurance product sale. This may well be a complaint by a disgruntled customer. However, this is still something worth considering.
- Understand the quantum of processing fee before you sign up. A higher processing fee can add significantly to the overall cost.
- Avoid if the company tries to sell an insurance plan along with the product. Will unnecessarily add to your overall cost of the loan.
- If you must go for a personal loan, do check out the interest rate from other players too and take a call accordingly.
What Are the Documents Needed?
Disclaimer: My assessment is based on the information on the product page/sample loan agreement on the website. Before you sign up, you need a much better understanding of the product and its cost structure.