Personal loan bails you out of emergency

Personal loan bails you out of emergency

Personal loan bails you out of emergency

In case of urgent cash requirements for unexpected events, most people opt for personal loan. These loans are quite costly, though they may be available at short notice. Ideally, these loans should be taken for short tenures as the interest rates are pretty high, unto 30 % per annum. Personal loans require minimum paperwork - proof of identity, residence, income and bank statements for three-six months are usually sufficient. But before you take a loan, compare the interest rates and charges levied by different banks and financial institutions.

Processing fee

The processing fees are charged on the loan amount and is payable upfront by the borrower, while filing the loan application. This is non-refundable and covers the costs of determining the loan eligibility of the potential borrower. It varies from half to one % of the loan applied for.

Prepayment penalty

Most banks levy prepayment penalty if loans are repaid before the full term or an agreed minimum period. Prepayment disturbs their cash flow and income estimates and hence the borrower is penalised. The amount varies from 1-5 % of the outstanding loan amount. Sometimes though, banks do waive off these charges. Remember that the penalty is payable on the balance amount outstanding and not on the total loan sanctioned.

Mode of EMI payment

One should check the EMI to be paid. This would depend on the loan amount, interest rate and loan tenure. Usually, EMI starts from the month of final disbursement of loans, or the following month. Depending on the cash flow position of the borrower, a decision on this behalf should be taken by the borrower. The timing of commencement of the EMI has an impact on the total interest to be paid by the borrower over the period of the loan.

Advance EMI

In some cases, advance EMI may be payable upfront at the time of disbursal of loan. This effectively increases the cost of loan as the bank is already taking back part of the loan, before even disbursing it.

Security required

Normally, personal loans are unsecured. However, in some cases, the banks may insist on security for the loan. The security may be in the form of shares, securities, fixed deposits, gold, insurance policies, etc. You can pledge these as collateral and obtain a loan against them.

Guarantor

In some cases, a guarantor may be required for the loan as well.

Credit history

The credit history, which is recorded by CIBIL (Credit Bureau India Limited), plays a critical role in the loan application being accepted. A good repayment track record ensures an instant loan approval and attractive interest rates.

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