Have you faced any financial difficulty lately which prompted you to borrow money from a bank or non banking financial corporation (NBFC)? If that is the case, one should be mindful of a slew of things which we list out here. For instance, one should make sure that the interest rate charged on personal loan is not exorbitantly high, and it should be feasible to borrow money for the purpose you have chosen.
These are some of the key concerns which need to be addressed before you take out a personal loan.
Personal loan: 7 key concerns to address
I. Reason for loan is genuine: One of the key concerns to address is that the purpose of loan should be genuine. For instance, it is not irrational to borrow money for hosting a wedding, for house renovation, or for an emergency. However, it is not advisable to borrow money for something as avoidable as a vacation.
II. Interest rate: Another important factor to consider is the rate of interest which varies from lender to lender. The lower the interest, the better it is for obvious reasons. So, it is recommended to compare the interest rates charged by different lenders before you zero in on one of them.
III. EMI is affordable: The monthly instalment that you will be made to pay to repay the loan should be within your budget. It is recommended that your monthly instalment should be within 50 percent of your monthly income.
IV. Processing charges: Borrower should also make sure that the processing charges are not exorbitant. A small percentage of processing charges are acceptable but some lenders charge as high as 5 percent of loan amount in the name of processing charges. You should be on the lookout for that.
V. Loan insurance: Some lenders prompt borrowers to take loan insurance which raises the quantum of EMI. So, you should opt for it only when you are comfortable with the additional loan burden. Else, you should drop it regardless of the degree of nudging.
VI. Reputation of lender: One more factor that is worth considering is the reputation of the lender. One should avoid opting for a lender which has a bad reputation in the market.
VII. Prepayment penalty: Last but not the least, you should make sure that the bank does not prenalise heavily for your intent to repay the loan prematurely. Additionally, it is worth mentioning here that RBI recently announced that the lender must give an option to borrowers who opted for floating interest rate to switch to fixed interest rate at the time of tweaking of interest rate.
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