Financial emergencies always arrive unannounced. It could range from a medical emergency to a family wedding to a sudden cash crunch before a family vacation. A personal loan from trusted sources such as the personal loan online is a great way to cover all your immediate financial needs without burning a hole in your savings. They also help improve your credit score as long as you make timely EMI payments.
Personal loans are lucrative for several reasons. These are unsecured loans, so you don’t require any collateral before availing one from any financial institution. Moreover, the lender does not monitor how you use this money, so you can use it in any way you please. It gives you a sense of financial freedom without having to compromise on your aspirations or dip into your savings. If your credit score is high, you can get the minimum interest rate applicable on your loan. An online personal loan is also easier to manage with its financial limit, unlike credit cards that charge high-interest rates and virtually limitless credit access.
So why do so many people still not trust personal loans? Several unscrupulous scamsters often pose as finance companies or NBFCs and dole out personal loans with attractive offers and deals. It lures people to get these loans and inevitably get into a debt trap.
Is there a way to distinguish between a genuine personal loan provider and a fraudulent lender? There are certain red flags you should look out for.
Things to Know While Choosing the Best Personal Loan Provider:
To get the most financial benefit from a personal loan and not incur unnecessary costs or debt, you must choose the right loan provider. You can identify and discard fraudulent personal loan providers by looking for certain red flags.
- High rate of interest:
The first and foremost red flag to stop you from opting for a personal loan is an exorbitant interest rate. The reason behind this is that interest rates increase your monthly expenditure. The higher the rate of interest, the higher the amount you need to pay on your EMI every month through the loan tenure. It also means that your EMIs will be made up of more interest than the principal amount every month. It adds up to a longer tenure and a higher than necessary cost on your borrowing.
Interest rates on personal loans vary from lender to lender. The only way to understand which loan is better for you is by comparing each loan offering and assessing the overall rate in the market. With multiple quotes, you can understand where you’re overpaying and how you can avoid such a trap.
- Longer loan tenure:
Sometimes lenders make it seem like you’ll be paying minuscule EMIs each month to repay the loan. It seems lucrative until you realise that this amounts to a longer loan tenure and a debt trap that will last more years than necessary. It means you end up paying more interest than needed and can also interfere with your other financial needs and goals.
To avoid this trap, make sure you compare personal loan tenures and the borrowing costs that various loan providers are offering. Using a personal loan EMI calculator can also tell you what portion of your EMI is interest and which part is the principal amount. If one personal loan EMI is lower only because the tenure is longer, choose a different lender.
- Expensive loan processing and miscellaneous charges:
If you need to pay a large sum of money just to get a loan, it will take you farther from your goal by reducing your available finances. Some lenders and NBFCs levy processing fees and other charges, while others don’t. Always compare loans and miscellaneous charges before choosing a lender.
- High loan prepayment charges:
Anyone who borrows a personal loan wants the flexibility of repaying their loan faster if possible to avoid the high-interest charges. Most lenders and NBFCs levy a loan prepayment charge, with the rate and fee varying from one lender to another. Make sure you compare the loan prepayment charges of multiple lenders before settling on one.
A fraudulent personal loan provider will always have high charges and penalties for loan prepayments. Often, these charges are higher than the interest the borrower will save through prepayment. It is meant to discourage loan prepayment so you remain in the debt cycle longer and pay more interest. Most lenders usually allow loan prepayment with nominal prepayment charges, so there’s no reason to choose someone that levies a higher fee.
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To compare the different aspects of personal loans and EMIs, use a reliable personal loan EMI calculator and see the EMI breakup accurately.
