What Are The Personal Loan Terms and Conditions?

Personal loans are unsecured forms of credit that do not require any collateral and can be availed for big purchases, medical treatment, debt consolidation, etc. Most banks and NBFCs offer personal loans to applicants after assessing various parameters like employment history, repayment capacity, income level and credit score. It is a popular form of funding since it can be used for almost any purpose.

Usually, all the lending terms followed by most lending institutions are standard and as per norms of the Reserve Bank of India, but there may be some lenders who may have special terms and conditions. Before finalizing the deal, it is ideal to know about the different terms and conditions on a personal loan for a positive experience:

• Use Of Loans:

Personal loans borrowed from banks can be used for planning a destination wedding, buying machinery, paying off children's college fees, covering medical expenses and a lot more. Whatever be the need, it must be legitimate. To avoid any trouble, it is very crucial to read the loan agreement that categorically specifies about the end-usage of loans.

• Ascertain The Actual Interest Rate:

The interest rate charged on personal loans depends on a number of factors. Usually, the rate of interest offered by public sector banks is comparatively less than the private loan providers. Regardless of the type of lending institution, every borrower must carefully scrutinise the total interest to be paid on a personal loan.

Occasionally, the rate offered by the lender may be misleading. For example, in case of monthly resets, the interest rate calculated on the outstanding principal balance can be a little less than the actual interest rate offered by the bank. A simple way to know the monthly EMI and the total interest to be returned to the bank at the end of the loan tenor is to use the personal loan EMI calculator.

• Hidden Charges:

Personal loans may come with hidden charges that banks may not disclose initially. Usually all lenders charge processing fees, insurance charges, service fees and other such expenses. The typical practise followed by most lenders is to deduct the processing fees from the sanctioned loan amount and then transfer the balance to the bank account. Other charges like the insurance charges and service fees are included in the EMI that a borrower pays every month.

One way to know the extent of additional costs incurred on a loan is to calculate the EMI on a personal loan calculator and cross-check it with the EMI that the lender expects the borrower to pay on a monthly basis.

Non-payment of any of the levied charges is reported to the credit information company (including CIBIL), resulting in low credit score.

• Pre-Payment:

Once the borrower signs the agreement, he or she is bound to pay the EMI periodically. A longer repayment term results in lesser EMI, though the total interest amount paid throughout the loan tenor is much more than the interest paid on a shorter loan repayment tenor. But sometimes borrowers can manage a lump sum of money that can help them to foreclose the loan.

Most lenders allow customers to foreclose their loans but it can be done only when a certain number of EMIs have been paid. Also, borrowers must be aware of the foreclosure charges that banks charge as prepayment penalties.

In addition to these borrowers must be aware of the following terms and conditions on a personal loan:

• Any change in mailing address, telephone numbers and other contact details of the borrower must be intimated to the bank, along with the loan account number and a valid documentary proof.
• Borrowers can ask for the interest certificate at the end of each financial year.
• Lenders cannot discriminate among borrowers based on caste, religion, gender, etc.
• All loan application forms should include necessary information regarding fees and payments to help borrowers compare rates and other details with other banks.
• If loan requests for an amount less than Rs 2 lakhs are rejected, lenders must convey the reasons for rejection in writing.
• Borrowers must maintain sufficient credit balance in the bank account to honour each EMI.
• Any change in terms or conditions of the loan must be communicated to the borrower.

Conclusion

Personal loans are versatile financial tools that can be used for a variety of purposes. But since loan terms can sometimes be tricky, borrowers must do a thorough check of the loan terms and conditions.

Also, borrowers must not fall prey to complicated EMI schemes that are smartly designed to confuse them. One should be extremely careful about what is being offered. So, borrowers must choose good lending institutions that value customers.

IIFL Finance is a reputed lending institution that offers customized personal loans at attractive and affordable interest rates to fulfil every dream. IIFL Finance quick personal loan disbursement process can help customers with express disbursal of up to Rs 5 lakh into their account in just a few hours.