Every loan facility comes with its own set of terms and so does personal loan. With personal loan, you have flexibility; you can use it for varied purposes like education, wedding expenses, emergencies, medical etc. It’s also called as short-term unsecured loan as you don’t need to pledge any collateral for the same. This is also the reason why you need to meet all the eligibility criteria set by the lending institution. While personal loan is quite easy to avail, there are a few common personal loan terms you must know. Let’s take a look:
- Online Loan Application
Digitization has changed the way lending companies offer their products. Many lenders including banks and NBFCs offer personal loan online; You need to fill an online loan application form and upload some necessary documents to apply for it. This eliminates the paperwork and need to visit the banks and also speeds up the process.
- Principal & Interest
Lenders levy interest on the loan amount, i.e., the principal amount you borrow from them. Different lenders offer personal loans online at different rate of interest. What you need to repay is the principal amount plus interest. There are many private lenders who demand monthly interest payment and principal be repaid at the end of the tenure.
- Annual Percentage Rate
Annual Percentage Rate or APR represents the total cost of taking a loan or credit. While calculating APR, the total interest, processing fees and application fees are factored in. If after availing the loan, there’s a falter in repayment, you may attract penalties. In many loans, there are pre-payment charges also. If so, these also need to be considered while calculating APR.
- Processing Fee
Many lenders charge a processing fees of 1 to 2% for personal loans. Some of the financial institutions charge a flat fee too. It’s always better if the processing fees is lower as it adds to the cost of borrowing.
- Pre-Payment Charges
Prepayment charges or the penalty is levied by few lenders for part loan amount repaid before the completion of tenure. Loans usually have a lock-in period during which prepayment charges are applicable.
- Credit Score
Credit Score is generated from your credit history, viz., your credit calls and loan repayments, etc. Timely payments result in better credit score. A healthy score of 750 or above is required for you to get your personal loan online easily.
- Default & Late Payment Charges
Default is when you miss your regular payment of Equated Monthly Installments (EMI). It attracts heavy penalties and late payment fees. Such situations may arise if you are facing cash crunch. This may result is increase APR and poor credit score.
Whether it’s a big expense you trying to meet or looking for debt consolidation, a personal loan online can be a great financial tool. However, it’s always better to know what you are getting into and be prepared with a repayment plan. Knowing these common terms will help you calculate the cost of borrowing and also aid in making a good decision.