There are plenty of financial institutions which offer instant personal loans, including banks, non-banking financial institutions, and fintech platforms, without asking for too much documentation. One can simply raise a loan by giving some basic proofs such as salary slips, evidence of income, PAN, address proof, and ID card of employment.
Meanwhile, before you sign on the dotted line, it is recommended to be aware of the key concepts of a personal loan. One must know, for instance, the impact of high processing fees, the concept of APR, and also the purpose of the EMI calculator. Let us explain the six important terms related to personal loans.
Planning to raise a loan? 6 Key terms to know
I. Processing fee: Before raising a personal loan, one has to incur processing charges at the behest of the lender. This is deducted from the loan proceeds.
Typically, this is a small amount, but it could be as high as 5% of the loan amount. Since this varies from lender to lender, one must factor in these charges to make a calculated decision of choosing the “right” bank
II. Loan tenor: This refers to the time period during which the loan must be repaid. This is important because the longer the time period, the smaller the EMI. And the shorter this time period, the bigger the loan EMI.
III. EMI calculator: This is used to compute the loan EMI (Equated Monthly Instalment). Three factors which affect loan EMI are tenor, interest rate, and the amount of the loan.
IV. Fixed rate of interest: Typically, a personal loan carries a fixed rate of interest. This means the rate at which interest is given stays uniform during the loan tenor.
V. Secured vs unsecured: A Secured loan refers to a loan which is extended against collateral, such as gold or mutual funds, whereas an unsecured loan is disbursed without any collateral, for instance personal loan. Generally, personal loans (like other unsecured loans) carry a higher rate of interest.
VI. APR (Annual Percentage Rate): This refers to the cost incurred by the borrower for raising the loan. This is a measure of the interest rate plus the additional fees charged for the loan.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
