03 Mar 2014

Rupeepower Editorial Team

What You Need to Know Before Getting a Personal Loan?

Before you start signing on bank documents, make sure that you understand the following:

1) All Money is Equal

When borrowing money, you need not worry about the source (Bank/NBFC). Money is money and the bank you are borrowing from makes no difference in the value of money. Many a times borrowers will borrow money from a bank because the customer likes the bank due to the bank’s marketing efforts. Unlike other goods whose branding actually offers you a value, the lending institution has less to offer you.

2) Compare All Options

Make sure that you have compared a majority of banks for their offerings. Many a times customers get dissuaded after non-eligibility with a few banks. Banks vary significantly in their lending criteria and not comparing with all banks can turn out to be costly at times. You can also benefit from temporary schemes or offers a bank might be running to meet its lending targets.

3) Appropriate Loan Tenure

Choosing the right loan tenure is critical to ensuring that you payback on time and do not pay interest unnecessarily. Choosing a shorter loan tenure can mean that you are unable to timely pay your EMIs. Whereas, a longer loan tenure means that you pay interest for an additional time when you could have paid in advance. For more information read our article on “Personal Loan Tenure”.

4) Various Ways to Apply for a Personal Loan

There are various ways to apply for a personal loan. The option you choose influences the services, process time, & information risk of your application. Read our article¬†“How to Apply for a Personal Loan” to learn more about the various methods to apply fo a personal loan.

5) Looking at Prepayment Charges & Processing Fees

There can be many situations when you are able to prepay your loan. Prepayment concerns only a small proportion of borrowers who believe that they will have money available to repay their loan faster than they expected. If you think that you will have significant monetary inflows well before you loan end period, then definitely look at prepayment charges. Learn more about “Personal Loan Prepayment Charges”.

Processing fees is charged for the cost a bank incurs on processing your file. These are applicable only if your loan is disbursed. Make sure that you are comparing the processing fees while comparing interest rates from various banks. To learn more about processing fees read “Personal Loan Processing Fees”.

6) Do Not Borrow More Than You Can Repay

While you might be eligible for a large loan amount, you should not simply borrow all you can get. Getting a loan should be a well planned and carefully thought activity. Getting the money is only a small part of the loan process. The real experience of a loan begins once you start repaying your loan. Borrowing more money than needed will eat more of your income on interest. Further, you will end up spending it on unnecessary goods. Remember than what you borrow you have to repay. If you don’t repay, your life ends up becoming worse. Even though RBI has curtailed the aggressive recovery procedures of lenders, there are other repercussions of not repaying your loan. Most important is having a bad CIBIL score. This means no options to get future loans or loans at very high interest rates.

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