Availing debt products or debt instruments is a common phenomenon especially when we prudently want to plan our events and purchases without straining our monthly budgets. However, the debt instruments often come with their own list of charges and fees which we may overlook when selecting one of them.
Does it so happen that you realise that you are paying more than the initially agreed upon amount of your loan? In order to understand what you are really paying for, we have enlisted the charges involved in availing a debt instrument and how not to be struck by hidden charges throughout your loan tenure!
Read the agreement carefully
On availing a personal loan, the lender provides you with a loan agreement. In this agreement, the lender clearly spells out the terms and conditions of the loan and how you have agreed to repay. It includes the charges involved in processing and servicing the loan. Also, it clearly states the penalty charges that would be demanded in case of delay or default in repayments. The agreement drafted briefly often exceeds the comfort level, deterring the borrower from carefully going through the listed terms. Thus, borrowers often feel that they have been tricked with some hidden charges that weren’t notified previously. It is of utmost importance to set aside some time to read the loan agreement attentively to avoid conflict in the remaining tenure.
Know the charges involved
Once the terms of service are clear, you must understand all the charges involved in availing the personal loan chosen. You must contact the lender to get extensive information on all the charges and deductions that would take place during the loan tenure. Here is the gist of the charges that you may come across –
Processing Fee
It is the fee that the lender charges the borrower in order to carry out the loan approval to the disbursal process. The fee would differ from lender to lender, however, it is priced between 2 to 4% (inclusive of taxes) of the entire sanctioned loan amount.
Prepayment charges
Many lenders, though not all, charge a prepayment / part payment fee to borrowers who wish to pay a higher amount towards the principal outstanding as against that agreed upon EMI. Borrowers often get additional funds later and desire to clear as much as loan possible, thus, choose to opt for prepayment. However, many lenders may have rigid terms when it comes to borrowers prepaying their loans.
Foreclosure Charges
Foreclosure charges are those charges that the lender may charge the borrower on pre closing the loan. If the agreed upon loan tenure was 2 years and the borrower wishes to foreclose the loan within 6 months, the lender may charge a foreclosure fee to the borrower. However, many lenders have flexible repayment and foreclosure rules and not all would charge the said fee.
Late payment fees
When a borrower fails to make timely payments towards the scheduled EMIs, the lender charges him a late payment penalty. This is a fee that you cannot get relief from regardless of how liberal the lender may be. Thus, if you wish to save up on penalty charges like these, you must make your EMI payments on time.
Loan Insurance
Just like any insurance availed to protect health or assets on an individual, a loan insurance is availed to protect your loan repayments. If you fail to repay your loan due to job loss or any other emergency, the loan insurance helps to cover up for the missed repayments in the affected period. Though the borrower has the privilege to opt out from loan insurance, it is advisable not to.
Make timely payments
To avoid falling prey to a few charges that you just cannot eliminate, you must make your EMI payments on time. This not only helps you to prudently manage your debts but also keeps your credit score intact. If you service your loans on a timely basis, it certainly helps contribute positively and enhances the chances of future personal loan approval.
Enjoy Transparent processes With LoanTap No need to worry about hidden charges anymore as LoanTap offers a transparent Personal loan process. You can avail a personal loan online via web or by visiting our personal loan app; and enjoy a smooth personal loan process right from approval to disbursal. You can foreclose your personal loan without any charges post 6 months of servicing your loan on a timely basis. You also have the leverage to prepay your loan without any prepayment penalty. And yes! Let’s not forget the flexible loan offers you get to choose from! Isn’t it a complete package? So, wait no more, apply for your instant personal loan now!
