How to Avoid Personal Loan Traps

Last Updated : March 11, 2020, 2:43 p.m.

Financial ups and downs are very common for every person and no one can claim that they never faced such situations. May it be the richest person in the country or the top financial institution, everybody had to face such situations now or then when they need a financial support. Talking about financial support, most of the times it comes as a credit. According to the needy, only the form of the credit is changed. And, when a credit is availed by a person for personal use, it is called a personal loan.

A personal loan has come to rescue us innumerable times, especially when we are down with the financial pressure. Such credits are indeed very useful if you can handle it skillfully. It is true that it helps you in fighting the cash crunch but not to forget the fact that they come with some hidden traps too. So, today, we will make you face some personal loan traps and the best ways how you can avoid them.

Personal Loan Traps

Processing Fee

Talking about a processing fee, it would not be wrong to say that it is an obvious expenditure associated with any loan. But all it matters is that how much your lender is charging you. One thing that needs to be mentioned here is the fact that a processing fee of every lender differs. Many times a few NBFCs charge a higher processing fee because of an applicant’s low eligibility or credit score .

How to Avoid: Generally, a processing fee ranges between 1.50%-2.50% of the loan amount but at times a few NBFCs try to fool the applicant and charge a higher fee. So, in order to avoid such a situation, it is important for an applicant to read the fine print carefully so as to know what is the exact processing fee mentioned in the document.

Loan Insurance

Some of the lenders may force you to take insurance on the loan. Or they may tell you that without an insurance, they don’t approve any loan application. You have to understand the fact that a loan insurance is never mandatory and no lender can force you to take up the loan.

How to Avoid : In order to avoid the same, you have to be updated with the rules and regulations of RBI and enable to make an impression that you have already researched on a personal loan and they can’t make you a prey of their trap.

Tempting Offers

In order to grab the attention of many borrowers, one of the most common practices that lenders do is to come up with exciting and attractive loan offers. These tempting offers include attractive interest rates, low processing fee, flexible repayment options, etc. Such offers or you can say marketing techniques lure the borrowers hence they easily got trapped in the offer.

How to Avoid: To avoid the trap, you need to go into the depth of the offer. You need to understand the fact that no lender will lend you the money when there is no profit for them. You just need to find out the hidden clause of the offer so that you will be free from the trap.

Increased Interest Rate

The interest rate is the next trap where any lender can easily be struck. Well, just like a processing fee, the interest rate of different lenders can vary.

How to Avoid: To avoid this trap, you need to do market research and compare all the lenders. In fact, you can also have a word with your lender regarding the lower interest rate, in case you enjoy a good credit score and credit history.