Before taking a personal loan, ask these questions from lender to avoid any future regret
If you want to take a personal loan, you must ask from your lender important questions such as the rate of interest, loan tenure, fees and charges. While these queries can help you get a loan at an affordable interest rate, the chances of getting trapped in debt will also be reduced
Personal Loan: Personal loan has become a very important financial tool in today's time. The special thing about personal loan is that you can use it for starting a business, travelling, or for any personal work. But before taking a personal loan, you must ask from your lender some important questions regarding the rate of interest, loan tenure, fees and charges, and also whether the loan is secured or unsecured. While these questions can help you get a loan at an affordable interest rate, the chances of getting trapped in debt will also be reduced.
Fixed or floating interest rate?
Before taking a personal loan, know whether the interest rate on your loan is fixed or floating and how it will affect your monthly payments.
There are two types of interest rates on a loan: fixed and floating.
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Fixed interest rate is one which is decided at the time of taking the loan and remains the same throughout the loan tenure.
Floating interest rate is the one which changes when RBI changes the repo rate.
If it increases significantly, your overall repayment amount can also increase, posing more financial burden on you.
The biggest advantage of the floating interest rate is that if the repo rate decreases, then the interest rate reduces.
At the same time, when the repo rate increases, the interest rate increases.
Whereas fixed interest is not affected by market fluctuations, it remains the same during the entire loan period.
Ask your lender about the loan tenure options available and what is the maximum and minimum tenure for loan repayment?
Personal loans come with different loan terms, ranging from a few months to several years.
Taking a loan for a longer period means that your EMI amount will reduce.
But for this, you will have to repay the loan during the entire tenure.
On the other hand, prepayment of the loan, or the contraction of loan tenure, can reduce your overall repayment money significantly since you have to pay less interest rate with reduced EMIs.
Fees and Charges
Apart from the interest rate, there are also several other fees and charges that may be associated with a personal loan.
These charges may include processing fees, prepayment penalties and late payment charges.
Be sure to ask about all these charges before deciding on a loan.
Inform your bank in advance if you want to prepay your loan, or if you want to miss your EMI for some reason.
There are chances bank agree not to charge extra money or slap penalty on you for these reasons.
Is the Loan Secured or Unsecured?
Determine whether the loan is secured or unsecured.
Interest rates on secured loans may be lower but there is also a risk of losing your collateral if you default.
Unsecured loans usually have higher interest rates but they do not require collateral.
To decide between them, access your risk factor and repayment capacity.
Many banks and NBFC companies levy prepayment charges for repaying the personal loan before the stipulated period.
If you are planning to make additional payments or repay the loan prematurely, inquire about the prepayment penalty and ask the bank about the pre-closure process and charges before taking the loan.