A personal loan is a type of loan borrowed by an individual to meet his/her urgent financial requirements. Any individual takes a personal loan only to meet his monetary needs like house ownership, higher education, the marriage of children, and more.
To pass the loan eligibility criteria, you should have a good CIBIL score. Once you meet the personal loan eligibility criteria, you can proceed further. When you avail personal loans, banks lay down certain terms and conditions.
Hence, a personal loan agreement should be signed cautiously after analyzing all your financial needs and reading the terms and conditions carefully.
Below is a complete list of things that you must keep in mind and check before signing a personal loan agreement:
- Loan Amount
You must take a loan amount that suffices your financial requirements. Banks will generally lure you to apply for a higher amount considering your eligibility but stick to your monetary needs. A personal loan is one of the expensive debts, hence, it is necessary to apply only for what you need..
- EMI payment
Before signing a personal loan agreement, it is important to check the number and amount of EMI or Equated Monthly Instalments. You can check the monthly payments with the help of a loan calculator and find out if it is suitable for you to pay on a monthly basis.
- Processing fee
Banks generally charge up to 1-2% of the loan amount as processing fee. These charges add up to the total cost of the loan. Lower the processing fee, the better.
- Prepayment charges
Prepayment charges are the charges that you need to pay if you repay the remaining loan amount before the due date. Banks usually keep high prepayment charges to make the borrower stay in the loan and bear the full amount of the interest cost. You should make sure that the prepayment charges are not expensive. It is because if you have a good cash inflow in future, you can think of repaying the loan earlier.
- Loan tenor
Loan tenor is the duration of the loan. It is also known as the repayment period. It shows the time available to you to pay off your principal and interest amounts. It is important to keep the loan tenor as short as possible to pay off your debts early.
- Interest Rate
While applying for a personal loan, it is good to check if the interest rate is fixed or floating. Personal loan interest rate affects your EMI amount as well as your loan tenor. A fixed interest rate is generally lower than a floating interest rate and does not change over time creating uncertainty in future
- Add-on offers
While applying for a personal loan, banks will lure you with add-on offers like an accidental insurance plan. It will be offered to you at no cost, but ultimately you will have to pay interest on the premium of the policy. Hence, make sure you do not fall for such add-on perks.
Looking at the above checkpoints, you are now aware of all the things that you must keep a check on before signing a personal loan agreement.
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