Hidden charges in personal loans: What lenders don’t want you to know | Mint

With more and more Indians turning to personal loans to bridge their financial shortcomings, there is a need to clearly understand the costs incurred while opting for these personal loan products.

While can prove to be of invaluable help during a time of need, these often come with certain complicated fees that collectively make the loan costly enough. With this article, let’s explore those all hidden charges you pay with personal loans and offer some ideas on how to avoid them best.

Seduction of a quick personal loan

Personal loans provide immediate access to money for any number of reasons, from medical expenses, education, travel to home renovations. Their immediacy can be seductive, but one needs to know the total cost, not the sale price. You should also clearly understand how much net amount you are getting as a loan and how much will you end up paying after following all the repayment directions according to your lender.

Understanding the hidden fees

Personal loans in India often have a number of charges over and above the rate of interest.

Let’s simplify some of the most usual

• Processing charges: Pay documents and are usually a fraction of the loan amount.
• Prepayment fees: Levied if you prepay the loan prior to the term schedule.
• Late payment charges: Levied when loan installments are tardy or delayed by you.

Elaborating on other possible charges

On top of the common culprits, check for these charges:

• Documentation charges: Paid to the loan document preparers and processors.
• Insurance premiums: Lenders will often demand insurance, and you’ll have to pay extra for it.
• Loan cancellation charges: In case you need to cancel the loan after it’s already approved, some lenders will charge you a fee.

Your checklist for steering clear of surprise fees

To shield yourself from surprise fees, keep the following in mind:

• Bargain processing fees: Negotiate and request lower fees.
• Read prepayment terms: If prepayment is an option, read the terms carefully.
• Read fine print: Read the loan agreements for all fees.
• Clear doubts: If in doubt, clear them before signing for the loan.

Focusing on taking well informed decisions

Hence, the way to prevent surprise charges is to be knowledgeable, well-read and active. Compare quotes from different lenders, ask questions, and carefully read the loan contract prior to signing.

By becoming sensitive to surprise fees and by keeping yourself safe against the same, you can have a tension-free experience with a personal loan free of financial crisis and tensions. Always remain watchful in case of transparency and honesty while negotiating with lenders to prevent surprise fees in the future.

It is also important to always keep in mind that personal loans are dangerous and should be used with care. They have a high interest rate and can trap a person in debt if used without care. Borrowers should study their financial condition thoroughly and weigh other alternatives before taking a personal loan.

(Note: Raising a loan comes with its own risks. So, due caution is advised)