Personal loans in India can be a helpful tool to navigate financial challenges or fulfill aspirations. These aspirations or needs include home renovation, marriage expenses, medical bills, or any other personal commitments. While personal loans might seem like an easily accessible way to meet one’s financial goals, they often come with many hidden costs that most people are unaware of.
So, let’s explore the hidden costs of personal loans in India if you are planning to take an online loan.
Hidden Costs of Personal Loans in India
1. Processing Fees
Processing fees are charges levied by lenders or financial institutions for handling the loan application. Most banks take processing fees, often a percentage of the loan amount. It’s like a service charge for getting the loan approved.
So, before jumping into a loan agreement, ask about the bank processing fees. Sometimes, you can negotiate or choose a bank with lower fees.
2. Late Payment Charges
Banks schedule your EMI payment based on your financial situation, and it is crucial to abide by the set payment schedule to avoid attracting late payment charges. Late payment charges are not just limited to late EMI payments; some lenders impose penalties like cheque bounce charges and non-payment of EMI penalties.
Therefore, ensure you understand your lender’s late payment fees to avoid unnecessary costs.
3. Prepayment Charges
Prepayment charges are fees imposed if you decide to pay off your loan before the agreed time. This means if you plan to clear your loan amount early, be cautious. Some banks or lenders charge extra for repaying the loan sooner than expected.
So, to avoid this, check the prepayment conditions. Opt for loans with no or minimal prepayment charges. It’s better to have the flexibility to pay off your loan without added fees.
4. Insurance Premiums
Lenders might push you to get insurance for your loan, and the premium is tacked onto your loan amount. While insurance is crucial, it’s sneaky when forced upon you. It can make your loan more expensive without you realizing it.
So, for best results, read the insurance terms. You might have the choice to select your insurer, allowing you to find a better deal outside the lender’s offering.
5. Interest Calculation Method
Lenders may use varied methods to calculate the rate of interest. The flat interest rate might look low but could cost you more than the reduced balance. This means how interest is calculated affects the total amount you repay. It’s crucial to know the method your lender is using.
So, understand how interest is calculated. Choose loans that use the reducing balance method, as it generally means lower overall interest payments.
The Bottom Line
Personal loans can be handy, but knowing the hidden costs is crucial. Connect with the IDFC FIRST Bank personal loan team, and a thorough understanding of the loan terms can help you make informed decisions. So, before making any decision, calculate the total cost of borrowing, like all hidden charges, before committing to a personal loan in India.
