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7 Things to Consider While Taking a Personal Loan in India

One of the most important financial decisions that a lot of people have to take is applying for a loan. Considering the challenges in acquiring a loan involved with regards to the collateral and interest, it can be hard to pay the money back in case a financial setback occurs.

Banks offer loans such as Indiabulls Personal Loan for many reasons – to purchase a home, to purchase a vehicle and many more. These are generally paid back within a few years of applying the same.

However, one recent trend that has gained momentum over the past few years is Personal Loans. Personal Loans are generally smaller amounts of money that are taken to finance a personal commitment such as travelling or tending to an emergency financial crisis. If you’re considering taking a Personal Loan, here are seven things you must take note of before signing the dotted line:

  1. Access cost for the loan:

Banks don’t just take the interest rate as the amount that an individual needs to bear. There are other charges too that need to be considered. These costs vary from bank to bank regarding the amount, but the fee is generally the same. Here are some of the common access fees for loans:

  • Processing fees – These are fees that banks generally take for around 1-2{e64294096edabcf7b620c20514b4c09cf9ff2af3d5cba00f7b754c6e259a209a} of the loan amount. A few banks generally charge this amount as a flat out processing fee for the loan while some take the percentage cut as shown above. The lower the processing fee for you, the better it is from a financial perspective.
  • Pre-payment fees – Some people generally take a Personal Loan to help finance a short-term financial crunch which is normal. In these cases, pre-paying the loan is an easy possibility as you can pay the rest when the cash starts flowing properly. Once you pre-pay the loan, you can save on the absolute cost of the interest. If you also fall under the same category, you must consider the prepayment penalty costs as well. Banks generally use the prepayment penalty to make sure that borrowers bear the full interest cost and also stay within the loan.
  • Late payment fees – A lot of credit institutions generally levy a smaller penalty as late payment fees. In case you end up struggling to pay the loan back, consider the late payment fees as well.
  • Consider the needs and not eligibility when you borrow:

If you require around 3 lakh for a short-term need, you need to borrow only that amount. A lot of banks generally try to convince you to take higher amounts as it results in better incentives for them. A lot of banks also send reminder emails to customers for the same and the prospect can be pretty enticing initially.

However, it’s important that you kept your head clear and focused and only take the amount you require. Personal Loans in India are an expensive form of debt and paying unnecessary interest on these amounts. Just make sure you’ve got yourself covered, and everything else will turn out fine after that.

  1. Detailed Research on Interest rates is a Must:

Better rates are always something you should search for. Make sure you scrutinise all the finer details of the loan you’re taking before you apply for a loan. Don’t apply just to check the rates. This might result in enquiries on your CIBIL score and can have an adverse effect on your overall credit score as well. Check the prevailing rates by calling customer care only and save yourself the pain.

  1. Ensure You Service the EMIs:

Be honest and know your ability to repay the loans you’ve taken. Your bank won’t know how you’re going to repay them, but you sure do. Make an honest assessment and do not service the Personal Loan EMIs if you feel you won’t be able to do so. Talk to friends and family because any failure to service EMIs ends up resulting in penalties and also spoiling your overall credit history.

  1. Check Your CIBIL Score Before You Apply:

Credit institutions and banks consider the CIBIL score before they sanction any loan. If you have a score that isn’t great, then you can get the loan application rejected,or the bank could increase the interest rate. Make sure you sort that issue out first before applying for any loan. You can find your CIBIL score easily for a small fee.

  1. Avoid Offers for add-ons:

Sometimes, when banks sell Personal Loans in India, they will try pitching additional products as well in the guise of accidental insurance plans. You don’t need to pay anything upfront for the same,and the insurance premium will get added to your EMI. In such cases, say no because you’ll end up paying an extra amount in addition to the interest rate as well. Accidental insurance is just one sort of example; there are so many other add-ons offers as well which you should learn to say no to.

  1. Talk to your family and friends:

Before you end up taking a Personal Loan, it is always better to talk to your family or friends and see if they can pitch in. Most of them will be willing to do so and won’t even charge an interest rate. As long as you return the amount as promised, you won’t jeopardise the relationship you have with them. Also, you can be open about your financial situation with them and repay them with a calmer mind.

Try to avoid Personal Loans unless and until it is necessary. If you think you can pay them back with the interest rates that they offer, go for it. Except for a credit card debt, Personal Loans are expensive debts that are available in the formal banking sector. Be careful, assess your options and then make a move after that!