With banks and non-banking financial companies (NBFCs) receiving huge funds post the demonetization drive, the credit market is buzzing with attractive personal loan schemes. The interest rates being offered by the lenders are highly competitive and the lenders have also relaxed the terms and conditions for disbursing loans. So, it would not be wrong to say that these are the best times for the borrowers to apply for personal loans. Nevertheless, the borrower needs to be aware of the pitfalls the scenario presents and follow some golden rules to bag the best deal.
Choose the lender carefully
While it is true that lenders are offering loans at attractive rates, one must not fall for the one that has the lowest rate. You may be flooded with promotional messages and emails about different loan schemes but you should take the call only after thorough analysis of the different schemes. Also, it may seem convenient to apply for a loan from a bank where you already have an account, but it is not always a wise step. You may miss out on better deals available at other banks. So, always check out the different schemes and do a thorough research at the loan comparison websites before finalizing a particular scheme.
Do not fall for flat rate
Figure out the actual interest rate that you will be paying on the personal loan before saying yes to a scheme. Many a time, customers fall prey to the tricks of the banks wherein the latter lure the former with flat rate of interest which turns out to be pretty lower than the actual interest rate that the borrower pays. The flat rate misleads the borrower as it does not include the reduction in the principal loan amount that occurs as a result of the EMI paid every month by the borrower. So, do not make a decision based on the flat rate and always calculate the actual interest rate that would be payable on the loan.
Do not go for advance EMIs
Advance EMIs are another trick that is applied by the banks to make the customers pay a higher rate than what they opt for in the scheme. In the advance EMI scheme, the first EMI is paid in advance to the bank and the bank disburses the principal amount minus the first EMI amount and the processing fee to borrower’s loan account. It has been seen that the annual percentage rate (APR) of the loan i.e. the total cost of the loan is usually higher in an advance EMI scheme.
Avoid schemes with 0% EMI
Many lenders offer personal loan schemes with 0% EMI to attract customers despite the RBI’s prohibition. It is a clever strategy on the part of the banks to get customers to apply for loans but in reality the loan is not interest-free. The banks compensate for the 0% EMI with high processing fees and other charges that ultimately lead to the borrower paying more than what they would have at a normal EMI rate.
Check out the hidden charges
Apart from the processing fee, there are other charges that lenders push towards the customer. So, it is necessary to read the fine print and find out the other hidden charges so that one is able to compare and select the best personal loan scheme.
Learn about the foreclosure rules
Many banks pose penalty on the borrowers in case they pay off the loan earlier. The foreclosure charges are applied by many banks and thus, you should get an idea about the same. If you feel that your cash flow might increase then you should opt for loans that have lesser foreclosure charges.
Do not approach multiple lenders
The lenders check the credit score of borrowers when they apply for loan and hence, when one applies for loan with multiple lenders, the credit score becomes available to all of them. This brings down the credibility of the borrower and the score may also go down. So, one should avoid it and use the online loan comparison tools for comparison purpose.
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