The second wave of the COVID-19 pandemic has affected millions of families across India. The hospital bills for the treatment have run up to lakhs of rupees for families. During this period, the Reserve Bank of India (RBI) announced COVID relief measures.
It allowed banks to launch a special personal loan scheme to help people tide over any cash crunch during the COVID-19 pandemic, with relaxed repayment norms.
Should you opt for a COVID-19 special personal loan scheme to ease your short-term financial pain?
Terms of the scheme
These special personal loan schemes of banks are now made available for treatment related to COVID-19. While applying for a COVID-19 personal loan, the borrower has to give an undertaking that the funds are required for meeting treatment expenses. Banks ask for a COVID-positive report from customers taking loans for treatment, on or after April 1, 2021. The terms of COVID-19 personal loans vary across banks.
Frequently Asked Questions
A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.
There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.
Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.
Gaurav Aggarwal, Senior Director & Head of Unsecured Loans, Paisabazaar.com says, “The special COVID-related personal loan schemes launched by a few PSU banks during the second wave can only be availed by a select group of existing depositors and borrowers, as per the eligibility criteria set by these banks.”
For instance, State Bank of India’s (SBI) KAVACH personal loan scheme is for treating the COVID-19 infection of self or for the family on or after April 1, 2021. It also processes reimbursement of expenses already incurred for COVID-19 treatment. It is available to customers of the bank – salaried, non-salaried and pensioners – with no processing fee or collateral. There are no foreclosure charges either. The minimum loan amount is Rs 25,000 and the maximum sum is Rs 5 lakh.
Similarly, Punjab National Bank’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. It is available to all government or private salaried individuals having their salary account with the bank and drawing a regular income for the last 12 months. The loan amount will be six times the average of the last six months’ salary credited in the account and capped at Rs 3 lakh. The salary will be verified from the bank statement.
Bank of India offers the COVID-19 personal loan only to customers drawing a salary through the bank, all existing personal and housing loan customers. The maximum loan amount is capped at Rs 5 lakh and the maximum tenure of the scheme is three years, including a six-month moratorium that borrowers can avail. During the moratorium period, borrowers are not required to pay any loan instalment to the bank.
Bank of Baroda has its own version of COVID personal loans for existing home loan, loan against property (LAP) and auto loan customers. The customer should have stuck to the bank for at least six months and should have paid a minimum of three months’ instalments already. The COVID personal loan amount can be 10 percent of the sanctioned limit of an existing and on-going home loan or LAP and 20 percent of the sanctioned limit of the auto loan the customer would have taken. The maximum loan amount is capped at Rs 5 lakh.
Union Bank of India extends the loan to existing customers. The maximum loan amount is capped at Rs 5 lakh. The tenure of the scheme can extend up to five years, including a six-month moratorium period.
Raj Khosla, Managing Director and Founder, MyMoneyMantra says, “Banks are restricting these personal loans to existing salaried, pensioners and loan customers because they know the credit history of the borrower before sanctioning them.”
Interest rates on COVID-19 loans start from 6.85 percent and go up to 8.5 percent (refer to table). Regular personal loans come at interest rates of 8.90-14.50 percent depending on your credit score and income.
“These schemes are offered purposely at low-interest rates to help many (existing) customers whose cash flows may have got impacted due to the costs incurred on medical treatment of COVID-19,” says Gaurav Gupta, Co-founder and CEO of MyLoanCare.in.
What doesn’t work
The COVID-19 personal loan schemes are restricted to existing customers of these banks.
“Banks will mainly lend only to customers who have a regular credit of salary from the employer as per terms and conditions for eligibility as explained above,” says Khosla. For existing loan customers, the bank will verify the track record of repayments and credit scores before disbursing any amounts.
A moratorium of three to six months is given. But, “During the moratorium, interest is charged and is added to the repayment costs of the borrower,” says Khosla.
Should you opt for it?
A personal loan should be your last resort while borrowing. If you are in a tight financial situation, first try and tap your emergency corpus if you have one. If you don’t, then liquidate your existing dud investments and gold holdings.
Do not opt for these loans just because they are easily available online and carry low interest rates compared to regular personal loans.
Khosla advises caution. “At this time, be frugal and control your expenses. Only if it’s a dire emergency should you opt for a COVID personal loan.”Some may want to tap the top-up option available in existing home loans for meeting cashflow constraints.