Personal loan in India has been a simple but complicated choice for people to answer their quest for dreams. Be it to meet an emergency need, down payment for a car, or investing in a business- people extensively rely on the offers made by the banks in regards to low personal loan rates. But this decision is more complicated than what appears on the face.

These days each one of us at least gets one mail each day related to pre-approved personal loans on their mailbox. The number of documents required for fetching the loans, the process and application have become relatively simple than it was before. Therefore there is a need to be more aware of the personal loan applications before signing that agreement. Here are some things to check before applying for a personal loan.

The loan amount!

A pre-approved personal loan from banks is mostly below the amount of 5 lacs. But if you are making an application specifically for your needs, the loan amount needs to be taken seriously. It is wise to apply for a loan amount that is essential to borrow. A relatively smaller loan amount is easier to pay off, attracts lesser interest amount and also gets settled faster. Skip taking extra amount to save from additional cost.

Reducing balance or flat interest rates

Not all personal loans are designed around flat interest rates. The flat interest rates are typically the ones with a low but consistent interest rate that keeps on reducing your burden over time. But the reducing balance interest rate changes as the schedule of payments keeps progressing. In any case, read the offer document and calculate yourself the installment amounts and the way the interest shall be charged.

Keep an eye on the costs

No matter how highly a bank speaks of the personal loan being free or ‘no hidden cost’ there are most costs to bear for a person than just the interest. A bank charges up to 2% of the loan amount as the processing fee. There are document costs, service charge and more added to the amount as well. In case of prepayment of loan amounts or being late at repaying an installment, some extra fee and charges are attracted as well. Ensure that you are aware of the charges that are going to be levied further to add up to your loan amount.

Repayment period

You wouldn’t want a short personal loan take you years to repay. It is both a burden and an additional task to carry each month. Keeping the repayment period short helps you pay away from the loan faster and get rid of it. Usually, for the short term loans, the period is 3 years or less. And for the long term loans, the schedule can go up to 15 years. The shorter the repayment period, the better it is for you.

Needs before eligibility

Just because you are eligible for a loan of 10 lacs does not mean you should sign up for it. If the needs are of 7 lacs only, consider opting for a loan of 7 lacs. A personal loan happens to be one of the most expensive styles of loan it can get really difficult over time to get rid of it. And the risk keeps increasing until you are able to pay it off well. Save yourself from the sweet talks of the bank employees trying to meet their targets. Consider needs before eligibility.

Meeting the EMI

No one, better than you, knows your ability to pay back a loan. And so it is wise to evaluate your capabilities and look at the figure of EMI that is going to arrive on you. An EMI or the equalized monthly installment is an amount to be repaid to the bank every month and is a sum total of interest on the loan and fixed installment. For the amount of loan you want to seek, check for the EMI you will be required to pay each month. Do not commit to the loan unless you are very sure of the repayment, lest the additional charges will keep on increasing the burden and risk on you.

Check your CIBIL Score

Banks need some sort of reliability when it comes to disbursing the loan to a person. Apart from the personal and professional documents, the CIBIL score matters. It is the credit score to determine your ability to repay the loans in a statistical figure. If you have a low CIBIL score, you are likely to be offered a high interest rate for the loan or a lesser amount than applied for. Banks may or may not convey the reasons for the same, but knowing the CIBIL score beforehand helps to make an application right.

Loan disbursal

There are instant personal loans that are disbursed in a day and then there are loans that sometimes take 15 days to get a disbursal. When you are in an emergency taking early disbursal is but a need. It is important to understand the terms of the bank and establish the fact that you need money urgently with the bank. It is when you know that the money shall arrive on time, that the loan shall be helpful to you.

Don’t fall for additional offers

Banks make all sorts of offers to lure customers and increase their earning. One of the distinctive ones is the additional offers. With a personal loan, you might get offered an accidental insurance cover, a life-insurance at a cheaper rate, etc. While the loan amount and interest is already high, the additional offers add up to your monthly cost as well. It is in the best interest to avoid the additional offers and limit the loan amount to what you need.

A personal loan can be tricky with the hidden costs, clauses on the form, additional offers, paperwork, etc. When applying for one, make sure that you are aware of all the details and the liability coming on to you. Sign up for the loan only when you are satisfied with the application and its conditions.