In an earlier post, we had reviewed a personal loan scheme from Bajaj Finserv. In this post, let’s pick a personal loan product from the State Bank of India, the largest bank in India. We will take a look at Xpress Credit Personal Loan Scheme from SBI.
SBI Xpress Credit Personal Loan: Salient Features
- Available under both term loan and overdraft facility
- Minimum Loan Amount: Rs 25,000 (term loan), Rs 5 lacs (Overdraft)
- Maximum Loan Amount: 24 times Net Monthly Income (NMI) subject to a maximum of Rs 15 lacs
- Maximum Loan Tenure: 60 months
- Minimum Net Monthly Income (NMI): Rs 5,000
- Loan amount for school teachers is capped at 12 months of Gross Salary
- Processing Fee: 1% of the Loan Amount plus applicable taxes
- Daily reducing balance loan (not that it matters much)
- Pre-payment penalty: 3% of the prepaid amount
- No margin, security and third party guarantee required
Additionally, EMI/NMI ratio cannot exceed 50%. EMIs of all your existing loans, along with potential EMI for this loan, will be considered for the purpose.
For the overdraft facility, the drawing power (DP) will be reduced on monthly basis so that the DP becomes NIL in 60 months. The quantum of reduction in DP every month is not defined. Clearly, it does not work like a regular overdraft account. If you have utilized the complete limit, you need to make payment every month because the DP for the next month will be lower. If you exceed the DP limit, be prepared to pay the penal interest.
Who Is Eligible for Such Loans?
This is a bit tricky. As per SBI website, the loan is available to only those who maintain salary account with SBI and work with one of the following entities.
- Central / State Government
- Central PSUs and Profit making State PSUs
- Educational Institutes of national repute
- Select Corporates that have business relationship with the bank
- The bank may consider employees from other corporates too, subject to a few terms and conditions
So, you need to be a salaried employee with select corporate or institution to enjoy this loan facility. As I see, if you do not meet this criteria, you will not get loan under this facility.
Flexibility of a Second Loan
SBI provides you the facility to take out a second Xpress Credit Loan while you are still repaying the first one provided:
- At least one year has passed since the first loan was disbursed
- You have been regular in making payments for the first loan
- Other conditions including maximum EMI/NMI ratio of 50% still apply
However, there cannot be more than 2 outstanding Xpress Credit personal loans in the name of the same borrower.
Now, here is an interesting aspect. SBI will not charge any prepayment penalty if the loan account is closed from the proceeds of a new Xpress Credit Personal loan. So, you can use this feature to your advantage in an interest rate downcycle (or shrink in spread over MCLR). Let’s assume you took a loan of Rs 5 lacs at 14% p.a. After a couple of years, the interest rate for the loan scheme has gone down to say 11% p.a. You can take out a second Xpress Credit Loan for the outstanding amount and prepay the first loan. You will NOT have to pay any prepayment charges of 3%. However, do note you will have to pay processing fee of 1% of the loan amount for the second loan. There may be other minor ancillary charges. This will, in a way, negate the benefit of avoiding prepayment charges. So, work out a few numbers before you take out a second loan to prepay the first loan and benefit from downward movement in interest rates (or shrink in spread over MCLR). It is good that you have such flexibility at your disposal. Remember, if you take out loan from any other bank or any other loan scheme from SBI to prepay your existing Xpress Credit Loan, prepayment charges will be applicable.
Interest Rate and Your Credit Score
I had discussed, in an earlier post, about the ever-increasing role your credit score can play in determining the interest rate of your loans. And here you have it. SBI, for its personal loan, is now giving loans different interest rates based on your credit score. Clearly, higher the credit score, lower the interest rate you have to pay. Therefore, do check out your credit score before applying for the loan. If the credit score is not satisfactory, check out these 7 ways to improve your credit score.
The interest rate for the loan will depend on:
- Your credit score (Name of Credit Bureau is not provided)
- Type of loan (Term loan or overdraft). Interest rate for overdraft is higher
- Corporate you work with (Corporate credit rating also plays a role)
- Whether you provide post-dated cheques for repayment or not (Check-off)
Notice that there is No Reset period. As I understand, that means your interest rate will be changed as soon as MCLR is adjusted. By the way, there are a few more categories of borrowers listed. Moreover, please understand these rates will change over a period of time. You can check the different borrower categories and the latest interest rates on SBI website.
Frankly, SBI Xpress Credit Personal Loan is not any special personal loan scheme. If you need a personal loan, do compare with personal loan products from other banks before you finalize. As I have always maintained, when you take a loan, you have to repay it too. Do not take an unnecessary personal loan just because you can take them.