There is a huge number of money lending firms in the market, and each one is putting out its own offers each day. While some of these offers really prove to be beneficial to the customers, many of them are just gimmicks. In such a scenario, a word to the wise is to abide by some basic rules when choosing personal loans.
That said, here are some of the top rules that you should religiously abide by when availing personal loans.
1. Pick Your Lender Wisely
NBFCs and banks usually carpet bomb the customers with multiple offers related to personal loans. They claim that the offers include the lowest rates. However, it is advisable for the customers not to get lured by the very initial offer that they come across via SMS or Email. Although it’s very convenient and simple to agree with a financial institute you are already related to, you might be letting go of better offers if you are not researching about the market properly.
2. Calculate the Rate of Interest
Banks are known to carry out their own financial jugglery. The flat interest rate is a method that is often used for luring business. This is nothing but a misleading concept, as it doesn’t consider the balance reduction with each EMI that the borrower pays.
It is important to remember that when you repay a personal loan with EMIs, the rate of interest must be estimated on the reducing balance. The flat rate won’t let you know the real cost of your loan.
3. Do Not Choose Advance EMIs
Advance EMIs is just another method in which the borrowers pay more than their contracted rate. Some of the loan lenders ask their borrowers to submit a couple of EMIs in advance when taking the fund. If a borrower avails a total loan of INR 1 lakh at 14 percent for eighteen months, the EMI would be INR 6,190. However, if he pays off two EMIs in advance, then the total loan amount becomes INR 87,620. An EMI of INR 6,190 implies that you’re paying off 17.5 percent interest rate rather than the 14 percent you are made to believe.
4. Check the Foreclosure Rules
Although the RBI has addressed the banks to stop charging foreclosure fees on the home loans, yet the other kinds of credit continue attracting prepayment penalties. The loan lenders levy a charge on the borrowers if they pay their loans early as early repayment does not allow them to earn the interest that they had anticipated to get from the entire deal. If the tenure of the loan exceeds a couple of years or more and you want your flow of cash to enhance in the upcoming months, then it is highly recommended to choose a personal loan that features lower foreclosure charges.
When selecting personal loans, you should make a wise and informed decision. You should give it enough time and carry out your own research. Abiding by the above-mentioned rules can help you to stay in an advantageous position when it comes to taking personal loans.
