10 Essential Personal Loan Conditions Every lender must understand before taking a loan

It has been seen repeatedly that aspiration lenders usually apply for personal loans, gold loans, home loans, credit cards and other similar credit lines without understanding the comments and complications associated with loans. While applying for all such credit instruments, it is important to clearly understand the agreements, key conditions and conditions associated with the loan transaction. It is important to avoid surprises later and face unwanted situations. The psychology behind loan conditions leads to lenders focusing on simple numbers, such as interest rates, which look at the most important conditions affecting the total repayment costs. Here are ten essential loan conditions that lenders must understand, acknowledge and clearly know before continuing with a specific loan: 1. Chapter This is the original amount of money, that is, the funds borrowed from the lending institution, excluding interest. It forms the basis on which interest is calculated and decreases as repayments are made. 2. Interest rate This is the percentage that the loan institution is charged to the principal for borrowing money. It can be determined, that is, unchanging in nature, or floating, ie variable based on market rates. It is the most decisive factor in determining the loan product and how profitable it is for any specific lender. 3. EMI The EMI (equivalent monthly installment) represents the fixed monthly payment made by the borrower which includes both the main and interest. This particular payment is effectively structured throughout the loan time to complete the repayment properly and in a convenient way for the borrower. 4. Loan period The loan period is the entire duration of the lender and the borrower for repayment of the loan. Longer term reduces monthly EMIs, while the total interest is paid. On the other hand, shorter tenure increases the monthly EMIs, which pay the total interest. 5. APR This figure represents the comprehensive cost of loans expressed annually. This includes interest and all fees cumulatively. APR (annual percentage rate) gives a more comprehensive and better image of actual loan costs than just the appropriate interest rate. This figure is generally checked by professionals before dealing with a specific loan product, such as a credit card or a loan. 6. Prepayment Propay is an option provided by the lender, where the borrower can repay the loan or part thereof before the deadline. Such a payment can go a long way to reduce interest liability and reduce the overall tension associated with any loan. However, it is extremely important to keep in mind that some loans may have fines for early repayment. The full details on prepayment must be clearly understood by borrowers before continuing with any loan. 7. Processing fees processing fees are the costs imposed by the lender for administrative work related to the entire process of approving the loan. It is important for the bank or the lending institution to run properly and holistically. Processing costs can be deducted in advance or added to the loan amount. As a wise borrower, one must always inquire and understand the processing costs that are assured by them insured. Any loan product should only be selected after careful comparison and professional guidance. 8. Moratorium A moratorium is a temporary break in the reimbursement of loans allowed under special conditions. For example, there were moratorium periods during the peak of the Covid-19 pandemic. It was provided to alleviate the burden of repayment on lenders when the entire economic activity temporarily came to a standstill. It is very important to work in the moratorium period. 9. Collateral an asset promised to the lending institution as security for the loan. It is nothing but a guarantee in case the borrower defaults. A collateral can be a property, gold, a fixed deposit, etc. Be. In such cases, the lending institution may liquidate the asset to recover fees if the borrower does not repay. 10. Loan-to-value relationship The relationship between loans and value represents the loan amount to the value of the asset that ensures the loan. It determines how much a borrower is willing to borrow against the property value. A lower LTV (loan value) ratio indicates a lower lending risk. Use lending institutions to determine loan arrangement, conditions of repayment and appropriate interest rates. In conclusion, personal loans with risks such as high interest rates, debts, hidden costs and impact on creditworthiness, fixed repayment obligation and the possibility of legal consequences if the loan is not properly repaid. All of these factors must be considered holistically before applying for a personal loan. Visit here for all personal finance updates. Disclaimer: Mint has a fusion with fintechs to give credit; You must share your information if you apply. These bonds do not affect our editorial content. This article only intends to educate and distribute awareness about credit needs such as loans, credit cards and credit values. Mint does not promote or encourage credit as it has a set of risks, such as high interest rates, hidden costs, etc.