Personal Loan Rules, Terms & Conditions that You Should Know!

Personal loans have become tremendously popular as they can be used for any purpose. Availing personal loans has become quite convenient these days. There are multiple institutions that offer personal loans through online or offline channels.  

However, before making it a personal loan apart from knowing the basic personal loan eligibility requirements, it is also vital to have an in-depth understanding of personal loan terms and conditions by scrutinizing the personal loan document offered by a lender.

Here are Some Personal Loan Rules, Terms, And Conditions You Should Be Aware of:

1. Credibility of the Lender

There are several financial institutions offering personal loans at attractive rates. Some make tempting offers and make people commit instantly. It is very convenient to commit through your phone. But you need to be extremely careful about who exactly is offering to lend to you, and whether they are genuine representatives of good lending institutions or fraudsters involved in personal loan scams.

2. Be certain about the Exact Interest Rate

Interest rate is always the luring factor when it comes to personal loans. However, the flat rate that is offered to you could be misleading. This is because there could be hidden charges in the offering, which will increase your rate. At the same time, if you calculate your interest on reducing balance, you will find out that your actual interest rate is lower than the rate stated on paper. You can get complete clarity on your personal loan EMI by calculating it yourself using our free Personal Loan EMI calculator.

Must Read: A Complete Guide of Personal Loan Glossary & Terminology

3. Prepayment Details

Personal loans charge prepayment penalties also known as foreclosure charges. This is a fee charged by lenders if you pay off your loan early. You need to understand the charges in-depth and choose a lender with low foreclosure charges if you are planning to use this option to pay off your loan early, or expect to be able to pay off the entire amount after a certain event transpires. Prepayment is a healthy step towards you being free of a loan sooner than your expected date - however, please be aware that most lenders do not offer this facility until a minimum number of EMIs have been paid.

4. Hidden Charges

Personal loans come with additional charges over and above the interest rate quoted to you. You have to usually pay a processing fee but there could be other charges like insurance charges, service fees, etc. It is also important to check the rate of the processing fee. Most lenders deduct the processing fee from the loan amount and transfer the balance to your bank account after your loan gets approved. Additionally, the final monthly EMI you need to pay will also contain extra charges such as insurance, service charges, etc. You can compare the monthly EMI on your loan agreement Vs the monthly EMI obtained from the personal loan calculator to understand the extra charges being levied. Please also note that most lenders levy penalty charges in case of an EMI bounce, or if you cancel the loan after it has been approved.

Thus, it would be wise to apply for a loan only when you are absolutely sure that you need the funds, and once you have received the same, it would be advisable to repay your EMIs on time.

5. Uses of the Loan

It is very crucial to check if the loan agreement specifies what you can and cannot use the personal loan for. The personal loan rules document will state this. Typically, it should state that you can use it for any legal purpose without any restriction. However, in case it specifies that it cannot be used in certain events, then you should know it before signing.

Must Read: How to Get a Personal Loan If You Have Low Salary?

6. Say no to Faulty or Complicated EMI Schemes

There are some attractive-to-the-eye zero EMI schemes. These are very popular among consumers as they feel they do not need to pay any interest for the product they purchase. This is a very cleverly designed scheme that has confused many borrowers. Potential consumers do not realize that they are being tricked into what appears as an interest-free loan to them. In such products, there are high processing fees, administrative charges, flat fees, etc. Please go through the loan agreement with a fine-tooth comb, and ensure that you thoroughly understand the terms and conditions before signing the agreement.

7. Personal Loan Documents

A lender would require KYC (Know your customer) documents such as driving license, Voter ID, Aadhar Card, etc. Apart from this, salary slips and bank statements would also be required. Therefore, one must keep these personal loan documents ready while applying for a personal loan.

Thoroughly checking all the terms and conditions might be time-consuming and tiring. But this is a great practice, which will help you in the long run.