How to Avoid the Personal Loan Traps

How to Avoid the Personal Loan
Traps
Financials ups and downs are very common for every person or institution and
no one can claim that they never faced such situations. May it be the richest
person of the country or the top financial institution, everybody had to face such
situations now or then when they need a financial support. The financial support
in most of the times comes as a credit. According to the needy, only the form of
credit is changed. When a credit is availed by a person for personal use, it is
called a Personal Loan.
Personal loans have come to rescue us innumerable times when we are down
with the financial pressure. Such credits are indeed very useful if we can handle
it skillfully. It is true that they help us in fighting cash crunch but not to forget
the fact that they come with some hidden traps too. Today we will make you
face the personal loan traps and the ways how you can avoid them.

Personal Loan Traps
Origination Fee
The origination fee or the processing fee of a loan is an obvious expenditure
associated with any kind of loan. But it matters how much your lender is
charging you. The lesser known fact of a personal loan origination fee is that the
origination fee/processing fee of every lender differs. Sometimes lenders claim
the processing fee to be higher because of your low loan eligibility, tenure or
the credit score. Generally, lenders impose a processing fee of 2% to 5% of the
principal amount. When your loan amount is big, even 1 percent more also
brings an impact.
How to Avoid
To avoid this trap, you will have to research on lenders to find the lowest
processing fee. You can even call the lenders for a better clarification on fees
and charges. If you do an online research, you will get the phone numbers of the
lenders easily in their websites and can make calls too.
Prepayment Fee
Personal loans allow prepayment of the loan before the tenure. This means that
you can prepay your loan whenever you will have enough liquid fund and get
rid of the loan burden.
Till a few years back, prepayment was chargeable and the borrower had to pay
some amount as prepayment charges. But presently, the prepayment is no more
chargeable. If your lender asks for prepayment charges when you want to have a
loan prepayment, understand the fact that you are getting into the trap of the
lender.

How To Avoid
To avoid such type of traps you have to be updated with the rules and
regulations of RBI which is the governing body of all financial institution of our
country. You are to keep your eyes open all the time as long as you are under a
loan.
Late Payment Penalty
Late payment penalties are chargeable when you pay your EMI late. If the bank
account with which your loan EMI is linked has less money on the day of EMI
deduction, you will have to pay a penalty for the same while paying the next
EMI.
How To Avoid
The single and simple rule to avoid this trap is to have the adequate amount in
your bank account and have the EMI paid on time.
Increased Interest Rate
The Interest rate is the next trap where any lender can be stuck. Just like the
processing fee, the interest rate of different lenders can vary.
How To Avoid
Avoiding this trap needs your market research on the all available lenders. You
can even have a conversation with your lender too for a lower interest rate if
your credit score and credit history both are excellent.
Loan Insurance
Some of the lenders may force you to take a loan insurance on the loan. Or they
may tell you that without an insurance, they don’t approve any loan
application. Understand the fact that A loan insurance is never mandatory and
no financial institution can force you to take up a loan insurance.

How to Avoid
To avoid such traps, you are to be once again updated with the rules and
regulations of RBI and enable to make an impression that you already have
much research on personal loans and they can’t make you a prey of their trap .
Tempting Offers
To attract more and more borrowers, most of the times online personal loan
lenders seem to come up with attracting offers on loans. Such offers attract us
and once again we become the prey of the marketing strategy of the lenders.
How to Avoid
To avoid this trap you are to go to the depth of the offer and I am sure that no
lender will lend you money when there is no profit for them. Try to find out the
hidden clause of the offer and you will be free from the trap.
Personal loans are undoubtedly a much useful tool to fight urgent cash
crunches. But we are to be smart enough so that the these personal loan traps
can make no harm to us and we can enjoy the benefits of it at its best.