How to decide on a loan for business?
By Vaibhav Aggarwal
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Partial pre-closure without charges

In this respect too, overdraft facility fares better than any other loan
The next best option after the overdraft facility is loan against property (LAP). LAP allows you to pay whenever you have excess cash even if the amount is as small as Rs. 10,000, thus reducing the principal amount and the interest.

Personal loans usually do not allow partial pre-closure. Local financiers penalize loan takers for partial pre-closure.

Low initial processing fees

Every loan has a processing fee. A personal loan charges a minimum of 2 percent of the loan amount as the processing fees. Processing fee in case of LAPs lies between 1 % and 2%. There may be an additional fee for legal opinion. Bank overdraft facility will also charge 1-2% excluding fee for legal opinion and encumbrance certificate.

In a chit fund loan, processing fee is in the form of initial few payments that are required to be made before the withdrawal can be made.

Collateral requirement

Every loan, except personal loan and loan from local lenders, require something as collateral. If a person does not have any existing asset he is left with the option of a personal loan only.

Amongst loans that need to be backed by some security, the gold loans have low interest rates and the cash outflow is also low but the quantum of loan is limited. The second best option is the overdraft facility followed by loans against property.

A particular loan cannot be best suited for all conditions. One should decide on a particular loan only after considering different variables and understanding the scenario.

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