5 Important Personal Loan Factors You Should Consider
Posted on Tuesday, November 21st, 2017 | By IndusInd Bank
Personal loans are unsecured loans, which do not require you to deposit any security in order to avail funds. They are considered as one of the safest and most effective financial solutions when you are faced with a cash crunch situation.
Personal loans come with an easy application process, making them one of the most popular ways to boost resources. The loan may be used for any personal purpose Depending upon your financial needs, you may choose to use the money to redo your house, pay for your dream wedding, set up a new office or go on a long-awaited vacation.
The purpose of a personal loan is to give you quick access to funds, which have to be repaid in fixed instalments i.e. Equated Monthly Instalments (EMIs) over a given period of time. Since you get to choose the dynamics of the repayment process, it’s important to consider various factors associated with these payments and be well informed of the same before applying for a personal loan. These include:
1. Tenure and EMIs
EMIs are paid over a predetermined tenure, based on the amount of loan taken and according to the interest rate charged. This tenure is flexible and determined by you to match your convenience. A shorter tenure attracts higher monthly EMIs, while the latter reduces as the tenure increases. This feature allows you to choose your repayment plan according to your resources, which you must plan carefully.
2. Rate of Interest
Your risk profile, based on credit history and stability of income, goes a long way in determining the interest rate charged on your loan amount. Interest rate in PL is calculated on a monthly reducing basis.
3. Pre-Payment Fee
With personal loans, you may choose to pay entire dues prior to the expiration of the contracted tenure. Full pre-payment puts an end to your repayment obligations completely and saves interest money that you would have been required to pay otherwise. However, this is conditional. The option of pre-payment attracts a fee of 2% to 7% (according to the lending banks’ discretion) on the outstanding loan amount and may only be allowed within a certain period also known as lock-in period which may vary across financiers .
4. Cheque Bounce Charges
If your monthly EMI is not cleared as per the agreement conditions, bank makes you liable to pay EMI bouncing penalty in the range of INR 250 to INR 500.
5. Other Charges
It is advisable to understand the fineprint of the terms of the loan and assess the total cost of the loan, which may attract other charges such as processing fees and documentation charges.
6. Credit History
Your credit score is of utmost importance when it comes to applying for a personal loan. A good score establishes creditworthiness that exponentially increases the chances of approval, while existing repayment obligations adversely affect your application. It is highly advisable to pay off all pending dues and create a good credit score before applying for a personal loan as it not only increases your eligibility, but it also improves your chances of getting more favourable interest rates.