Personal Loan Application: Why is it Important to Read the Fine Print?

A personal loan comes in handy during a financial emergency as it offers quick disbursal, flexibility of usage and requires no collateral. While it may be a blessing for borrowers in need, it will directly impact their current and future financial position. Ideally, a loan should be taken only if you can afford to pay back the EMIs regularly. However, sometimes you may also fall prey to the hidden terms and conditions and regret after taking the loan. Hence, it is important for a borrower to read the fine print before signing on the dotted line. Although banks and other institutional lenders make detailed disclosure about their personal loan offerings, it is in the best interest of a borrower to pay attention to the following factors to avoid financial problems in the future. Interest Rates The rate of interest on personal loans differs based on the borrower’s credit worthiness, income, age and other criteria. The unsecured loan market is a highly competitive one and hence the banks offer lower rates to attract more customers. While the rate is explicitly mentioned in the loan documents, it is the borrower’s responsibility to pay special attention to this section. Compare the rate of interest with other lenders and make an informed decision. Other Charges Lenders levy a number of other charges on the customers such as documentation charges, amortization schedule charges, loan cancellation charges, collection charges, etc. You will also have to pay extra charges for late payment or missed EMIs. These charges also tend to vary from one customer to other based on his repayment history. For example, a regular defaulter may be required to pay higher charges as compared to a more disciplined borrower. Charges also vary from bank to bank. Axis bank charges 2% per month on the overdue instalment amount as penalty whereas IndusInd Bank charges Rs 150 plus taxes per EMI when payment is delayed beyond 5 days. Loan Processing Fee All banks and financial institutions charge processing fee on their personal loan. It is usually levied as a percentage of the loan amount and varies from bank to bank. For example, ICICI Bank charges up to 2.25% of the loan amount plus taxes whereas PNB levies a processing fee of 1.80% of the loan amount. As a smart borrower, you should compare the processing fee charged by different lenders to find an offer than is reasonable and comes with other benefits. Loan Tenure Personal loan tenure usually varies from 1 to 5 years but there are some lenders who are ready to give out loans for a longer tenure. For instance, Tata Capital offers personal loans for 7 years. Loan tenure should be decided keeping your monthly repayment capacity into consideration. A longer tenure means smaller EMIs and vice-versa. However, a longer tenure also entails more interest cost. Hence, borrowers need to take smart steps. Prepayment Charges Although prepayment or foreclosure charges are generally mentioned in the loan document or on the online portal of the bank, a number of borrowers do not pay attention to it. It is always a good idea to make pre-payment or part-payment towards your loan as it significantly reduces the overall interest pay-out. Discussing the terms of prepayment in advance will help decide whether it is good to pre-pay the loan or not. Additional Criteria Apart from the regular eligibility requirements like a good credit score, disciplined repayment behaviour, income, age, etc., some banks may have additional requirements. Kotak Mahindra bank requires its personal loan applicants to have at least one year work experience and 1 year of residence in the current city. For applicants who are doctors, PNB requires them to be taxpayers for the last 3 years in order to be eligible. It is better to use the bank’s eligibility calculator to find out whether you meet their criteria and then proceed with the application. To know more go at https://www.lifehack.org/482597/10-things-remember-when-applying-for-business-loanrn