Personal loans are a sort of instalment debt that you can use for almost any purpose. For debt consolidation, they are the best choice. Personal loans are readily available, so it's a saviour solution in need of the hour. Since they are unsecured loans, borrowers look into specific parameters for approval. In this post you'll learn how to avoid hidden charges in personal loan.
Banks and financial institutes must agree to specific conditions before approving one such loan request. However, as someone desperately looking for cash, people forget to look into the most crucial aspect: hidden charges. So, are you looking for personal loans? It's time to understand the ins and outs of hidden charges in personal loan. You can also reduce the risk of these additional personal loan charges by following the points mentioned in this post. So, let's understand the topic in more detail.
What Do You Mean by Hidden Charges in Personal Loan?
The additional charges in personal loans are referred to as hidden costs. Banks and financial institutes charge hidden costs. Unfortunately, these charges are added to the borrower's EMI payment in case of loan default or other reasons. Thus, one must read the fine print to understand what to expect before signing paperwork.
Types of Hidden Charges in Personal Loans
Borrowers may not be aware of the charges while proceeding with the loan application. So, if you still don't have any idea of hidden charges, let's find them out from the following points:
⮚ Charges for Duplicate Documentation
Some lenders levy duplicate documentation charges when borrowers request photocopies of loan documents. You may expect free access to loan documents. However, some lenders include certain clauses to levy charges for additional copies. So, you must thoroughly review the contract documents to be aware of charges in a personal loan.
⮚ Prepayment Penalties
There are penalties charged by the lender when the borrower pays off the loan before the agreed-upon term. The prime intention of these penalties is to compensate lenders for interest income they would have earned otherwise. In addition, repayment penalties may be included in the loan agreement written in the fine print.
A desperate borrower might miss out on checking the penalty while applying for the loan. A newcomer in the personal loan industry would simply assume that you have total freedom to repay the loan before the due date without additional fees. So, one should always look for prepayment penalties in the loan agreement before signing the contract.
You may also read this: Part-Payment, Pre-Payment, Pre-Closure of Loan
⮚ Charges for Late Payments
Besides your interest and monthly amount, the lender also includes late payment charges in a personal loan. When a borrower fails to pay the amount within the due date, the lender charges an additional fee. Some financial institutes may offer a grace period before adding the late fees.
Note that late payment fees are personal loan charges that differ from one lender to another. They have various consequences:
- It may affect your credit (or CIBIL) scores.
- This might make it difficult to opt for a loan in the future.
So, you must always read the terms and conditions before choosing the loan.
⮚ Cancellation Charges
Next, cancellation fees are applicable for personal loans, too (just in case you thought they were only valid for flight or train tickets). Such amounts are reimbursed by borrowers if they cancel or withdraw their application. You can avoid these additional personal loan charges by reading the terms beforehand.
⮚ Processing Fees
While applying for a personal loan, you may pay lender fees. Simply put, lender fees are the most common personal loan charges that might not appear to be a lot of money. However, if you add the amounts, borrowing becomes more expensive. So, you must always consider the processing fees, including the underwriting charges.
Besides, a few lenders only accept loan payments through cheques. So, they may charge a fee for processing these transactions. If you want to avoid late fees, you can use e-payment methods or consider that charge when paying back the loan.
Understanding Various Methods to Avoid Hidden Charges in Personal Loans
The following are the methods with which you can avoid hidden charges in personal loan:
⮚ Method 1: Pay the Amount within the Due Date
After applying for the loan, you get a massive amount for your personal use. However, one thing you should keep in mind is to pay your amount by the due date. Most often, people ignore late payment charges. However, lenders charge this additional fee if your monthly EMI is not transacted within the due date. The fee comes as a percentage added to your EMI amount.
⮚ Method 2: Make Sure that the EMI Cheque Does Not Cancel
Bounced cheques mean not paying the loan before the predetermined date. It may happen because of an insufficient balance in your linked account. In such circ*mstances, the lender includes the EMI default charges in a personal loan.
For unpaid EMIs, a lender can also charge penal interest. Note that it's a type of additional interest lenders charge on EMIs that are unpaid. Lenders apply this interest on default as well as late payments. So, one should ensure that the EMI cheque is not bounced by paying the amount on time.
⮚ Method 3: Make an Account for EMI Payments
A borrower needs to provide bank account details when applying for a personal loan. The information of borrowers is important for EMI payments. When the borrower changes the EMI account linked to the facility, a lender may charge an additional fee. This fee can be.
Additional Tips to Avoid Hidden Charges in Personal Loans
Some banks may offer hidden fees as personal loan charges, and you may not know anything about these fees. So, it's better to read the documents and carefully plan the repayment accordingly. On this note, you can follow the below-offered tips:
⮚ Carefully Check the Document before Signing the Contract
So, the first thing you should consider is reading the documents thoroughly. While applying for a personal loan, it is imperative to check the terms and policies of the lender. Documents give you a better insight into the lender or financial institute's policies.
⮚ Pay the EMI on Time
The next tip is to plan your repayment carefully to avoid missing out on the due date. It's the most seamless process to ensure no hidden charges are included. It helps you avoid late payment penalties that may be heavy on your pocket.
⮚ Comprehend the Types of Additional Charges Included
Next, make yourself aware of the types of additional charges in a personal loan that the company imposes in the policy. When you understand these fee types, you can automatically select a decent personal loan term that fits your interest.
⮚ Select a Renowned Financial Institute or Bank
A reputable institute will help you understand their rules and policies more precisely. The executive ensures you understand their policies and meet the application procedure quickly. In addition, the institute also helps you understand the loan process, documents required, and EMI payments.
A Concluding Thought
So, in a nutshell, being aware of hidden charges in personal loan can be achieved by being careful with the contract. Before choosing one, it is imperative to conduct your research and closely attend to the details of the personal loan charges. Assessing these aspects during the loan process helps you protect yourself financially from unwanted changes and penalties.
That way, a borrower can bring more transparency to the loan process. So, seek consultation from a trustworthy lender and understand its terms and policies. It's better to ask a question before you make a decision. So, apply for a personal loan that matches your requirements without paying extra.
