Personal Loan: If you are thinking about or planning to take out a personal loan, this news could be very important for you. People take out personal loans for various essential purposes. Currently, getting a personal loan has become very easy. Many banking apps offer personal loans to people. This facility is good for people, but do you know that people often accept offers in haste without comparing them? This mistake made by people proves to be expensive for them.
It’s important to understand that every lender plans to make a profit. Some profit from interest, some through processing fees, and some through penalty charges. But it is important that you make a decision not just by looking at the EMI, but by understanding the total cost.
Think beyond the interest rate
The interest rate is certainly important in a personal loan, but it is also important to understand whether it is fixed or can change over time. Many people are happy just by looking at the monthly EMI, while in the long run, even a small difference in interest can significantly increase the total payment. Also, keep in mind that the rate shown in the advertisement is not available to everyone.
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It’s important to know the actual amount credited to your account
Processing fees, insurance, or other charges are often deducted from the loan amount before it is disbursed. Two loan offers may look similar on the surface, but there can be a big difference in the amount credited to your account. Before taking a loan, it is important to clearly ask how much money will actually be credited to your account after the application. Sometimes, on a loan of 5 lakhs, you only receive 4.85 lakhs, while interest has to be paid on the full amount.
Understand prepayment and foreclosure terms
Most people do not keep personal loans for the entire duration. After receiving a bonus, salary increase, or refinancing with another loan, people close the loan early. In such cases, prepayment and foreclosure charges become important. It’s important to know whether part payments are allowed, if there’s a lock-in period, and how much you’ll be charged for early loan closure.
Total payment is more important than EMI
A low EMI might make a loan seem safe, but it often means a longer tenure and higher interest. Therefore, when comparing loans, look not only at the EMI but also at the total amount payable over the entire loan period. Also, check if you have the option to change the EMI date or reduce the tenure if needed.
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Penalties and Lender Behaviour
Sometimes, EMIs can be missed due to technical reasons or timing mismatches. Some lenders impose heavy bounce charges, penal interest, and quick credit reporting in such cases. Before taking out a loan, it’s crucial to understand the late payment charges and the lender’s customer service record.
An easy way to choose the right offer
If you shortlist two or three loan offers and write down the net amount received, EMI, total payment, and the cost of closing the loan after one year for each, the right option will become clear. The best personal loan isn’t necessarily the one with the lowest interest rate, but the one that is least expensive considering your needs and circumstances.