Friday, 31 August 2012

Passbook Loan, Pros and Cons

Passbook loanYou must have heard of lot of loans such as housing loans, personal loans, gold loans, secured loans, unsecured loans, car loans, payday loans, and education loans and so on. But have you ever heard of passbook loan. Yes Passbook loan is also there.

What is Passbook Loan?

A passbook loan is a loan taken by a person by pledging his savings bank passbook to the bank. It is a loan against your savings bank account. Banks allow passbook loans from 50% to 100% of the savings bank accounts balance. They will hold the passbook as a collateral security. The interest rate will be a little bit more than the interest you earn for your savings bank account. Some banks may freeze your savings bank balance till repay the loan amount.

Pros of Passbook loan

One of the important advantages of passbook loan is that you can continue your savings bank balance even after you use the money by way of passbook loan. But this is not an advantage, unless you have to show the bank balance for any desired purpose. For some occasion the account holder have to show his savings account balance. This passbook loan can use in such situations.

You can increase your credit score by paying back the loan promptly. But experts say that a good portion of banks does not report this passbook loan and repayment to the credit rating agencies.

Cons of Passbook Loan

The main disadvantage of passbook loan is that you should pay interest for your own money. Banker will take more interest than they allow for your savings bank account.

The bank will Freeze your savings bank account till you pay the full loan amount. This is the second demerits of passbook loan. But remember that you are taking your own money in the form of loan and your savings bank account will have a hold till the end of the loan.

Who is eligible for passbook loan?

A savings bank account holder who has no any liability with his bank or those who pays off his entire loan without any delay can apply for a passbook loan. The bank must ensure that the person will pay off his entire loan amount in time.

With its own disadvantages the passbook loan is not popular at present. It is a type of person loan. Now credit card companies and other financial institution will extend loan to its customers who pay off all their bills and loans properly and in time. So the need of passbook loan is not reasonable. Credit card companies are ready to give loan without any collateral security or documents. But the interest rate is comparatively very high when compared to a passbook loan. In such a situation passbook loan has its own reasonability.

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