Most loan repayments starts after the first month of disbursal. Are there any loans which have grace period say about 1 year or more? I know repayment after 1 year will involve more interest but that is okay.
In India, for individuals tailor made loan repayments are generally for corporates (In my opinion). You could ask your bank if they are willing to grant you an Overdraft instead of a Loan. Under this product, you only need to service the interest and not installment.
Notwithstanding the above, if you can prove that your cashflows are comming in after a year, (definite source of repayment - prooved by proof of source of funds), Banks might consider this favorably. However interest repayment has to be met as and when due.
One example is if you have an FD which is maturing in one year’s time and that would be the source of repayment of your installment and you could show them the FD certificate etc, they might consider flexible option of repayment.
If you have FD, then the best option is to take an OD against this FD. Pricing will be 1% over the FD rate - most bank charge 2%.
On an OD of 1 lakhs how does the repayment schedule looks like? I believed OD is only for short term business borrowing that is provided only to current account holders?
Yes you are absolutely right. Overdraft is mainly meant for mismatch in cashflow for working capital management. However, in India, Banks do grant Overdraft to individuals if the security offered is FD.
Overdraft as a product does not involve principal repayment. You can manage your limit the way you want. Think of this like a credit card limit. You can always prepay the dues and your limit will be available. In case of credit card you need to pay a minimum. But in case of an Overdraft there is no minimum you need to pay.
It is for this reason that Bank generally grant this facility to companies where is a trickle feed of cash comming in and going out. When it comes to individuals, Banks grant this facility as security as FD is equvalent of cash.
They can easily offset the FD against the OD and settle the same. Hence if you offer an FD of 1 lack, you might get a limit of 90K. The margin is for interest in case you fail to pay.
So to come to your query, there is no fixed repayment for an Overdraft, the Bank gives you a limit of say 1 Lack, and you can operate the account and draw based on your need. Interest will be charged only on the drawn amount and not on the limit. If you draw 50K for 5 days, interest will be charged only for 5 days.
An extremely good product for emergency funds. Advisors (few of them) will advise clients to keep their emergency funds in a FD and take an OD against that. In case of emergency, the person can with draw the money at a moment notice.
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There are some banks that offer you a grace period but have terms and conditions for the same but only for the long term.