As you must know, personal loans are an affordable way to borrow money. You can get instant loans at a lower interest rate as compared to credit cards using personal loan apps. Since you can pay off your loan over a few years, personal loans allow you to make big purchases.
However, you must watch out before going with any random personal loan product as they are not all equal. Some loans just pretend as personal loans. And other loans are offered by untrustworthy lenders at unfavourable terms.
You do not want to end up with an undesirable loan. So you have to be on the lookout before you take out a personal loan. Pay attention to the warning points listed below while applying for a personal loan.
Pay attention to these warning points while applying for a personal loan
Take a look at some of the cautions which you must take into considerations while applying for a personal loan.
1. You are required to pay high origination fees
Many personal loan companies do not charge any origination fees. However, some good lenders charge a small origination fee for your loan, but such a fee would not add up to become a huge percentage of the loan amount.
In cases where you are asked to pay a huge fee, especially when you are availing a small loan, steer clear of that lender. Such fees can make your effective interest very high. Paying back such a loan can get very difficult.
2. Your repayment timeline is little
While it is advised that you do not take too much time to pay back your loan, you must also not agree with loan terms offering a short term to repay.
At times, you may want to go with the longest loan repayment tenure as it will keep your EMIs low. But, the smart decision is to pay off your loan in a short period to make the loan reasonably affordable.
Alternatively, suppose you agree with a pretty tight repayment period. In that case, you may get into a tough spot as short periods come with really high EMIs and you would have a few weeks to pay back the entire loan amount with interest. The only problem with that is that you might not be able to meet the required monthly payments.
Now, if you are unable to repay even a single EMI, it would damage your credit score or catapult you to borrow again. And you can get trapped in the never-ending loan cycle. This particular reason makes personal loans the most dangerous kind of debt.
3. Your personal loan has hefty prepayment penalties
You want to pay off all your debt early and become free of it in case you can come up with the funds required to do so. This way, you can get the stress from loan out of your system and also save on interest. But something called a prepayment penalty can charge you for clearing out your loan. So, choose a loan that has no prepayment penalty.
Many reputable lenders do not penalize you if you want to clear off your debt sooner. You must not settle for a loan that charges you for being responsible and wanting to get out of debt sooner than later.
Ways to find a good personal loan provider
Watching out for the above warning points can help you avoid bad lenders. But how to find a good loan provider? The key is to compare different loan providers and their features. Get quotes from multiple lenders or check other personal loan apps for the following features:
- Interest rates: A good lender offers low interest rates and minimum of other loan charges.
- Qualifying requirements: A good lender has basic eligibility criteria and asks only for a few important documents.
- Origination fees: A good lender has no or minimal origination fees that do not change your interest much.
- Terms and conditions: A good lender has standard terms and conditions. Avoid conditions like prepayment penalties when you take a personal loan.
- Time to funding: A good lender lets you get instant loan using a personal loan app.
- Loan repayment timelines: A good lender offers a flexible repayment tenure. You can choose the tenure of your choice from 12 months to 60 months with instant loans.
A good lender offers you the most reasonable interest rate and fees. Also, make sure that the repayment timeline is not too extended to leave you in debt for a decade or not too short of catapulting you to take another loan to pay off that loan.
Pay heed to the total cost of the loan, the EMIs, and the upfront fees asked by the lender. Also, make sure that you meet the lender’s eligibility criteria and requirements before applying for loan approval.
Ideally speaking, you must carry out in-depth research and rate and compare the important personal loan features out of at least a few different lenders to discover a personal loan best for your specific needs. For example, you can get an instant loan with a good online personal loan app.
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs