Inconvenient Truth about Personal Loans

• 26 May 2016 | 1663 Views | By Mint2Save

Look towards any fin-tech loan based website and mention us one that doesn’t offer personal loans attractively. These loans have been marketed as a solution to almost all financial need you have and do come with the tag of “instant approval” or “loaded with offers”. But is it really worth it to take a personal loan to meet immediate financial emergency? Is it that easy to avail one? Most important of all, is it really simple to manage such loan?

These no mortgage, clean loans have been a hot cake for lenders and borrowers since a long time. After all, who would say no when offered money without any security. Sadly, as the personal loan story unfolds, there are numerous cases where these loans, having gone bad have created problems for lenders, who in turn have harassed the borrowers for recovery. Goons have been hired openly to get hold of the goons (for the lender, defaulter is no less than a goon).

The increase in these cases certainly create a lot of curiosity: Why do these loans go bad so often?

We did thorough research and ask a few questions to the borrowers whose personal loans had turned bad. It was neither difficult to find such people, nor it was to analyse their experience with this loans. So, here we are, summarising 5 points which you need to be extra aware of while deciding to avail a personal loan.

1. Need of loan: Personal Loan doesn’t define any specific purpose. It can be taken for any random purpose: to buy a gadget, to plan a trip, to arrange a ceremony etc. Often, the hastiness to arrange resources makes one opt for these loans. It is recommended to resort to a loan as a last option and avoid it if the amount tends to go beyond 7 times of your gross monthly income.

2. Processing charges : Processing fees is usually a percentage based amount and is deducted from the loan. The fee amount is further increased by service tax, thus you end up getting 97-98% of the loan amount that has been originally sanctioned to you. However, interest rate charged would be on the whole amount that you have availed. Further, additions of add-ons such as insurance policies or credit card fees also reduces the amount of personal loan that reaches your account.

3. Interest Rates: These clean loans have a high interest rate. Starting at 14%, it can even climb to 18%, depending upon several factors such as your CIBIL score, repayment capacity etc. Interest is one of the most critical factors while addressing personal loan as the burden of the EMI would be dependant on this single word only. Make sure you get the best interest rates and since these are soaring high for personal loans, every decimal matters!!

4. Recovery method and instalment date/pattern: How does the loan company makes you back your loan is also a crucial point to note. If it is an ECS based payment, on which date would the ECS take place? If a cheque, the date of deposit is to be taken care of. Quite a number of loans go bad when the ECS payment is set to last quarter of the month. Same goes for the cheque. Whenever an ECS or a cheque is returned, you are not only charged for

5. Pre payment or part payment: Pre-payment refers to paying out the whole loan before its end date and part payment  means paying a large part of the loan, that reduces the repayment of the loan. Restrictions prevail even on these two payments modes also, preventing you to end up your liability before the stipulated time. There are clauses like no part/pre payment for at least a quarter period of the loan or charging penalties when loan is paid in part payment or prepayment modes.

Above mentioned facts are just a few things that make a personal loan more expensive and often unbearable for the unprepared. It is hence, requested that before thinking to avail this loan via any website or agents, do not make haste, but properly analyse the need that you have to take care of. Search for as many options of cheaper loans available, you can even take a loan against your fixed deposits or mutual funds that would be more comfortable to address than a personal loan.