Before You Borrow: 5 Red Flags to Watch Before Taking a Personal Loan
Personal Loan Warning Signs: People often take out personal loans for weddings, medical emergencies, or other big expenses. But did you know a poorly planned loan can wreck your finances? Let's look at 5 things you need to watch out for.
Check the Lender's Credibility
The first step before taking a personal loan is choosing the right lender (Bank, NBFC). Just because an app or NBFC promises a loan in 15 minutes doesn't mean it's trustworthy. Always borrow from an RBI-registered bank or NBFC. Check the company's ratings, customer reviews, and authorization details before taking a loan. Remember, borrowing from an unauthorized lender can put your personal and financial details at risk.
Understand the Processing Fee Trap
Often, people focus only on EMI and interest while taking a loan and ignore the processing fee. Some banks and NBFCs charge a fixed amount. At the same time, many lenders charge a processing fee of 2% to 5% of the loan amount. For example, if you take a loan of 5 lakhs and a 3% processing fee is charged, then you will have to pay an extra Rs 15,000. Therefore, compare processing fees before taking a loan.
Borrow Within Your Capacity
Always borrow only as much as you can comfortably repay. Taking a large amount makes the EMI burdensome, and you can get caught in a debt trap. Before taking a loan, calculate your monthly income, expenses, and savings.
Beware of Hidden Charges
Sometimes, banks or NBFCs do not disclose all charges while taking a loan. Later, you have to pay hidden charges like prepayment charges, foreclosure charges, and late payment penalties. So, read the loan agreement carefully. Look at customer reviews. Get all the terms and conditions in writing. This will save you from sudden hidden charges later.
Compare Interest Rates
The interest rate is the real factor that makes your loan expensive or cheap. Compare the interest rates of different banks and NBFCs. Currently, the interest rate on personal loans in the country ranges from about 10% to 24%. Remember, a lower interest rate means easier EMIs and less burden.
Disclaimer: This article is for informational purposes only. The points mentioned here are not financial or banking advice. Always assess your financial condition and consult with the relevant bank, NBFC, or authorized financial expert before taking a personal loan. Loan terms, interest rates, and charges are subject to change.
