Finance

3 Reasons Your Personal Loan Might Cost More Than Expected

Financial emergencies strike without knocking on the door. During such a time one often resorts to friends and family. But, one might have to face the embarrassment or get disheartened. In such times, borrowing a personal loan is a good option. 

A personal loan is an unsecured loan product wherein the borrower can use the money as per his needs and requirements. The lender doesn’t have any role in the usage of the loan amount. The borrower can use the amount for financing education, home renovation, managing wedding expenses, starting a business, or consolidating multiple debts. Minimal personal loan documents required and quicker loan disbursal make it a favoured loan product. 

Another advantage of a personal loan is that it is available at a low rate of interest in comparison to other loans and credit cards. Small loan tenure and low-cost EMI makes it even more attractive. But a personal loan might cost more than expected.

POOR CREDIT SCORE

A credit score is a reflection of one’s creditworthiness. It defines how regularly you have paid your previous debts. A credit score becomes the foundation of future debts. A good credit score indicates regular debt history without any defaults. Whereas a poor credit score indicates defaults in the repayment of the loan borrowed. 

A personal loan comes at a competitive interest rate. However, the lenders do consider the credit score of the borrowers before locking the deal. Lack of collateral and poor credit score puts the lender at risk, and therefore they offer higher interest rates. In contrast, a good credit score safeguards the lender and they willingly offer a low-interest rate offer. 

It is thus advisable to check your credit score before applying for a personal loan. A bad credit score can increase the overall cost of your loan.

ADDITIONAL FEES AND CHARGES

Personal loans come with a lot of hidden fees. A lot of these charges are hidden and work to increase the loan cost. It includes pre-payment charges, foreclosure fees, processing fees, etc. As an informed borrower, one must take these into account and calculate them before binding them to a lender. 

It is advisable to compare different lenders on account of these hidden charges and get a clear picture of every aspect. The borrower must be thorough with the terms and conditions of the loan agreement and must read between the lines. 

Fintechs like LoansJagat offers a comparative platform where you can compare over 40 leading lenders for their offerings. They help to choose the best personal loan in Delhi and other cities. Their platform chalks out the various fees charged by different lenders so that you can make an informed decision. 

FIXED MINIMUM LOAN AMOUNT

Personal loans are easy to procure. Online portals of lenders allow for loan application and disbursal with a click of a button. It may seem simple on the borrower’s façade, but a lot of administrative work goes to the back end. To ensure that their hard work is worth it the lenders set a minimum borrowing amount. This often results in borrowers borrowing more than what they want sometimes. 

Say you require Rs. 30000 loan, but the borrower has set a minimum borrowing limit of Rs. 50000. Then, you will have to buy a more expensive loan surpassing the actual loan amount you need.  

The factors directly or indirectly play a crucial role in determining the overall cost of your loan. To grab the most cost-effective deal, one must consider all the above factors. With the lending sector being at its all-time high, there is no shortage of lenders in the market. With careful calculations, one can opt for a personal loan that doesn’t cost heavily on the pocket.