Economic and pandemic-related challenges have pushed household finances to the brink for many. Many have had to dip into their savings to make ends meet; many others had to borrow.

Borrowing is relatively straightforward for the privileged few whose incomes have been stable during the pandemic. The financial stability of the borrower assures the lenders that their loans will be repaid on time. But for those without a stable income or a good credit history, opening a new line of credit is relatively more difficult.

Instability of income signals to lenders that you may be having difficulty repaying, and poor credit history indicates that you have had problems with loan repayments in the past.

Stable income and a good credit rating allow you to borrow at low interest rates. If you don’t have them, you can still borrow, but the rules of the game change.

Here are a few options you might want to consider when looking to borrow in these times of a pandemic.

Personal loans

These are term loans without any guarantees or guarantees, usually given to borrowers with stable incomes and good credit scores above 750. The bank where you have your salary account has probably already created a pre-approved offer. for you.

You can contact the bank, go to your website or online banking app, or check loan aggregation platforms to find out about your pre-approved offers.

You will need to meet the lender’s eligibility criteria such as stable income via salary or pension above a set limit (eg Rs 30,000 per month). If your credit score is low, you can still get a personal loan. However, you may have to pay a much higher interest rate.

Covid loans

Several public sector banks have created unsecured loans for clients seeking cash to deal with their Covid-related issues. A large government bank, for example, announced a loan of up to Rs 5 lakh with a three-month moratorium. The repayment must be made within 57 months of the moratorium. The loan is granted to salaried and non-salaried bank customers or to retirees who have had cases of covid in their family after April 1, 2021. It is an unsecured loan aimed at enabling borrowers affected by Covid to respond easily to their medical problems. expenses.

Credit card loans

A credit card is a versatile line of credit. In times of financial crisis, you may be able to meet short-term needs by shopping with your card and paying only minimum contributions (normally 5% of the total outstanding).

Once you have cash flow, pay your contributions as a lump sum. Remember that the interest rate on your credit card (3-4 percent per month) is much higher than a personal loan (typically 9-24 percent per year). Therefore, prompt repayment is essential to stop the accumulation of debt.

If you don’t have a credit card but have a good credit rating and a stable income, you can apply for one from a preferred bank after comparing the features. If you don’t have a stable income or a good credit rating, you can use a card against a fixed deposit with a spending limit of up to 90 percent of the deposit.

Home loan recharge

It’s a smart way to borrow, but often overlooked. If you have an outstanding home loan for which your payments have been regular, you can contact your lender for a top-up loan. This would allow you to borrow in addition to the home loan through the same loan account.

The advantage? You are borrowing from the same lender and as a result, you avoid a lot of paperwork. Being a secured loan, it is also cheaper than a personal loan or credit card debt. For example, a large private lender sells home loans at 6.75% and top-up mortgages at 7.60%. With this, you have one low cost consolidated loan that will be easier for you to manage.

Loans for property

Loans can be taken against term deposits, stocks, mutual funds, gold, and real estate assets. These are generally intended for borrowers with unstable incomes or poor credit scores, which makes them more difficult to obtain other types of loans.

When the borrower provides collateral, the risks to the lender are reduced. If the borrower is unable to repay their contributions, the lender can simply liquidate the collateral to get them back. Each lender, whether it is a bank or a non-bank finance company, has its own terms and conditions.

Against gold and term deposits, it may be possible to obtain up to 90 percent of the value of the asset in the form of a loan. With market-related securities such as gold, mutual funds, and stocks, a drop in prices would lead to an increase in the monetary margin requirement, which you will need to meet.

With any loan – secured or unsecured – there is an obligation to repay in full. In secured loans such as gold loans, non-payment can result in forfeiture of the collateral. A full and timely repayment would improve your credit score, making future borrowing easier.

A loan could meet your financing needs and get you out of an emergency. However, irregular repayments could complicate matters and deteriorate your financial health. So compare your options carefully and assess the affordability of repayments before making a decision.

The author is CEO, BankBazaar.com