It’s that time of the year again when you have to start thinking about paying the taxes you owe to the government. Ideally, you should have started looking into this at the start of the previous financial year itself. But, many people fail to do this.
If you too have forgotten to save up money to pay off your taxes, you need to make sure that you come up with the money soon. The penalties for not paying taxes are quite high. If you don’t pay your taxes by the due date, the Income Tax (IT) Department can slap you with a fine of up to the amount you owe. That’s double the amount you originally owed.
So, what can you do in a situation like this? Well, one way to pay off these dues is to take a personal loan. But is this a feasible option? Read on to find out how a loan like this can help you get out of a tight spot.
Why take a personal loan?
One thing is for sure; you don’t want to mess with the government. You don’t want to get into the bad books of the tax authorities and be known as a tax defaulter. It’ll only make things worse for you later.
So, how exactly can a personal loan help? To understand this better, let’s look at what this loan is, how it works, and how you can get one.
A personal loan is a sum of money you can get from a lender. There are hundreds of such loan options available in the market. Here are some features of these loans:
- You don’t have to put up collateral to get them.
- They are granted based on your income, credit score, and a few other factors.
- You can use the money to whatever financial end you see fit.
- You can choose from various options.
- Their interest rates are lower than those charged by the government for tax payment default.
- The application process is simple
- The lenders usually process your application within a day or two.
- You can repay the amount you borrow in equated monthly instalments (EMIs).
- Some lenders offer repayment tenures of up to 7 years. The usual period is 5 years.
How a personal loan can work for you
Let’s now delve a little deeper into some of the features. This will offer some insight into how this kind of loan can be beneficial to you.
- There are multiple options: Almost every lender in the country offers personal loans. Both banks and non-banking financial companies (NBFCs) offer these loans. But when you’re spoilt for choice like this, choosing an option can sometimes be a confusing task. That’s where online loan aggregators come into the picture. They give you all your eligible options on your screen, right in front of you. No more running around to find the right lender. Simply click a few times, enter a few details, and you get your options. All you need to do is to compare them and select the one that suits you the best.
- Use it for any personal need: Specific loans can only be used for specific purposes. For example, you can use a home loan only to buy a home, or a car loan to only buy a car. But you can use a personal loan for any purpose of your choice, as long as it’s legal. That’s the beauty of it; no restrictions. However, do use it wisely.
- Choice of interest rate: Some lenders may even allow you to choose the type of interest rate you want. There are two types – a floating rate and a fixed rate. A floating interest rate changes when the market rate changes. A fixed rate remains the same no matter what. Borrowers usually tend to choose floating rates because they generally are lower than fixed rates.
- Choice of tenure: Imagine borrowing a sum of money and then having the option to pay it over time at your convenience. That’s exactly what you get with a personal loan. You can take up to five years to repay what you borrow. Some lenders even give you up to seven years.
- No collateral: Perhaps the best news of all. You don’t have to offer collateral or security of any sort. Simply fill in the application form, submit it, and wait for your loan to be approved.
That being said, there has to be a catch, right? After all, why would anyone give out money “just like that”? True, there is a catch. But it’s not something impossible. These loans are given out based on whether you qualify for them or not. And how do you qualify? Keep reading to find out.
How you can qualify for a personal loan
Lenders offer these loans based on a few criteria. You have to fulfil some or all of them (depending on the lender) in order to get the loan. Here are some of the criteria that lenders require you to fulfil:
- Monthly income
- Debt-to-income ratio
- Credit score
The particulars of these criteria can vary from one lender to another. Now take a look at them in detail:
- Age – You have to be at least 21 years old to apply for a loan. Lenders also have a maximum age limit at the time of loan maturity. This is around 60 years of age.
- Monthly income – You need to have a certain minimum monthly income to qualify for a loan. For example, a lender may not give you a loan unless you earn at least Rs.25,000 a month. This minimum income allows lenders to gauge your repayment capacity. Therefore, the higher the income you earn, the larger the amount of loan you can apply for.
- Debt-to-income ratio – Your debt-to-income ratio is an indicator of how much of your monthly income is going towards paying off existing loans. It compares your current EMIs with your current monthly salary. The higher this ratio, the lower your chances of getting a large loan quantum. Your objective should be to pay off existing debts as much as possible before applying for a personal loan.
- Credit score – Perhaps the most dreaded criteria, your credit score indicates how responsible you are when it comes to repaying debts. If you have a history of repeatedly not paying your EMIs and credit card debts on time, your score will plummet. If you are paying them off regularly and using only a small portion of your credit each month, your score may be good or even excellent. An excellent score has the best chances of getting a loan approved without any hassle.
So, should you take a personal loan to pay your taxes?
As we’ve just seen, qualifying for this shouldn’t be too hard, taking the loan is easy, and it can help you pay off your tax dues right away.
But you should still see if other payment options can serve you better. For example, if you can pay off the amount with your next monthly income, consider using your credit card to pay your taxes right away. This way you get a month to pay your credit card dues without paying any interest.
All said and done, the aim is to pay off your taxes using the cheapest and the most convenient way. Credit cards can help. But if the tax amount is too large or if you won’t be able to repay the card dues with your next salary, taking a personal loan just might be your best bet.
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