Important things to know about : Personal Loans

May 4, 2010 - PRLog -- Like many other things, loans have become a way of life today. Most people, but, do not generally understand the difference between the various types of loans that they avail of, nor do they know how they work. This is true in case of personal loan also. It is better, therefore, to understand the basics of personal loans before availing them.

The tenure of personal loans is generally for short periods, varying from 12 to 48 months. These are unsecured loans in that the customer does not offer any collateral as security. Personal loans are sanctioned based on a person’s income proofs as well as residence and identity proofs.

The interest rates charged by the various banks and NBFCs for personal loans can be anywhere between 14 per cent and 25 per cent per annum and repayments are generally in equated monthly installments (EMIs). The Personal Loan Interest Rates are generally high when compared to home or car loans as the former are unsecured loans and the customer does not offer any collateral as security. The cost of servicing small loans is also high as compared to long-term large loans like home or car loans. Moreover being unsecured, the risk involved for the lender is higher.

In most cases, a processing fee is deducted from the loan amount and hence the amount disbursed is slightly lower than the sanctioned loan amount. The processing fee, therefore, is also part of the loan amount and the borrower repays this along with the total loan sanctioned.
Generally, interest is levied on a reducing balance method. The EMI is amortized in a way where the interest amount for the tenure is collected in higher amounts in the earlier installments and decreases through the tenure.

Therefore prepayments in a short-term personal loan is not generally good for the customer as most of the principal will still be outstanding in the later months of the tenure. Moreover, foreclosure of the loan is not allowed in the first 6 months of taking the loan in most cases and a pre-payment penalty is levied in case someone wants to close the loan early. This is done as the whole cost of lending is calculated based on the tenure of the loan and this cost is recovered through the EMIs over the tenure of the loan.

Also, if the interest rates come down during the period of your EMI tenure, your interest rate will not come down automatically. You will have to see the contract terms and conditions of your bank account. The bank might give a fresh loan at a lower interest rate but for your existing loan, generally the finance company or the bank does not change the interest rate.

Personal loans are conveniently available to fund unforeseen expenses like medical exigencies or one time large payments like admission fee for schools and colleges, marriage and festival expenses, repair to house, and so on. Most banks and finance companies disburse such loans within a week, making this a convenient option to fulfill these needs. Above all, these loans are available without any security and therefore they are more convenient. Borrowers must study all the terms and conditions of personal loans carefully before availing any loan.

Know More about Personal Loans:
http://www.deal4loans.com/apply-personal-loan-continue.php
http://www.deal4loans.com/personal-loans.php

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