These days it is very common to get a call or an e-mail for pre-approved Personal Loan. The creative nature of presenting such loan by the bankers is such that it appears this personal loan is customized only for you. So it may look handy but make sure you understand why you are availing a personal loan. Below are few things which you need to consider before taking a Personal Loan:
Avoid Personal Loan: Yes, this is the first point you need to consider. Since Personal Loan comes under unsecured loan, the interest rate is very high. Hence first check whether it is really required to take Personal Loan or not. Check other possibilities, such as help from friends, relatives. You should take Personal Loan only in case of emergency and that to Personal Loan should be the last option for you.
Verify All In Cost: Apart from interest rate, there are other charges also you need to verify.
Processing Fee: Banks charges 1-2% of the loan amount as processing fee. Few banks charges flat processing fee. You can bargain with the bank on this fee also to reduce this processing fee.
Prepayment Fee: Due to emergency you take personal loan which can be a short term. In this case you might look for prepayment of your loan once you have good cash flow. With prepayment you could reduce your interest burden. Banks use prepayment fee as a tool, so that you stay in the loan and bear the complete interest. Hence check with the bank, lower or no prepayment fee is better.
Late Payment Fee: In case you are late to pay your EMI, bank will penalize you with late payment fee. Do consider this fee also.
Shop for the better interest rate: As mentioned Personal Loan comes under unsecured loan category, interest rate is high. Spend some time online and compare Personal Loan interest rate provided by different lenders.
Avoid Add-On: Banks might offer you add-on on top of your Personal Load. Add-on like life insurance, accident insurance etc, and the insurance premium will be added into your EMI, hence you say NO.
Do not go overboard: It might be possible that while discussing with the bank person, he/she points out that you are eligible for much higher than you are asking. Since it is very easy these days to get t personal loan, do not go overboard; limit the amount to your actual purpose.
Credit Score: Banks check your credit score before sanctioning a loan. If you have low credit score then there is a chance of getting your loan application rejected. On the other hand if you have good credit score you might bargain for better interest rate on your Personal Loan.
Read Loan agreement details: You need to read the loan agreement details completely including the fine print to know all the charges, penalties. Do not rely blindly on the bank person with whom you are dealing.
Conclusion: Avoid Personal loan as much as possible. Only in-case of emergency and based on your actual need, consider a Personal Loan. Verify all the related cost and not only the interest rate.