Personal Loan: Before taking a personal loan, it is important to ask these questions to the bank, otherwise you will have to regret later...
Personal Loan has become a very important financial tool in today's time. The special thing about a personal loan is that you can use it for starting a business, traveling, or for any personal work. But before taking a personal loan, you must ask some questions to the bank. With this, apart from getting a loan at a very affordable interest rate, the chances of getting trapped in debt will also be reduced.
Fixed or floating interest rate?
Before taking a personal loan, know whether the interest rate is fixed or flexible and how it will affect your monthly payments. There are two types of interest rates: fixed and floating. A fixed interest rate is one that is decided at the time of taking the loan and remains the same throughout the loan tenure. A floating interest rate is one which changes when the RBI changes the repo rate.
The biggest advantage of a floating interest rate is that if the repo rate decreases then the interest rate reduces. At the same time, when the repo rate increases, the interest rate increases. Whereas fixed interest is not affected by market fluctuations, it remains the same during the entire loan period.
Ask your lender about the loan tenure options available and what is the maximum and minimum tenure for loan repayment. Personal loans come with different loan terms, ranging from a few months to several years. Taking a loan for a longer period means that your EMI amount will be reduced. But for this, you will have to repay the loan during the entire tenure.
Fees and Charges
Apart from the interest rate, there are also several other fees and charges that may be associated with a personal loan. These charges may include processing fees, prepayment penalties, and late payment charges. Be sure to ask about all these charges before deciding on a loan.
Is the loan secured or unsecured?
Determine whether the loan is secured or unsecured. Interest rates on secured loans may be lower but there is also a risk of losing your collateral if you default. Unsecured loans usually have higher interest rates but they do not require collateral.
Many banks and NBFC companies levy prepayment charges for returning the personal loan before the stipulated period. If you are planning to make additional payments or repay the loan prematurely, inquire about the prepayment penalty and ask the bank about the pre-closure process and charges before taking the loan.