Nowadays, getting a Personal Loan instantaneously without any tedious paperwork is possible. In contrast to secured loans, Personal Loans don’t require collateral from borrowers. While an online Personal Loan can be procured without collateral, lending institutions do charge certain fees for the same.
Let us first understand what a Personal Loan is, how it works, and the types of charges involved.
What is a Personal Loan?
Personal Loans are unsecured loans provided by lending institutions that allow individuals to access instant funds for various personal needs. Due to the unsecured nature of these loans, no collateral is required to obtain them. A Personal Loan may be used as and how the borrower sees fit. These loans are generally repaid in equal monthly installments throughout their tenure. Upon loan approval, an interest rate is charged at a fixed rate.
How Does It Work?
Most Personal Loans are considered the most well-sought-after credit options available in the market. Since there is no security attached to these items, failure to make payments might not result in the loss of possessions; however, it may result in legal proceedings and deterioration of your credit score.
As for secured loans, the lender may use the collateral pledged by an applicant if the loan is not repaid. Usually, mortgages and car loans fall into this category.
Personal Loan Processing Charges
An administrative fee is charged by your loan provider when processing a online Personal Loan application online to administer and process loans. Generally, these minimal charges range between 0% to 2% of the loan amount plus taxes. The processing charge imposed varies between loan providers.
Verification Charge
A verification charge is a fee charged to verify your identity and income. Lending institutions want to ensure you are who you say you are.
If you’re comparing Personal Loans, be sure to consider any verification charges. It may not seem like much, but they can add up if you apply for multiple loans.
Penalty on Default
When you take out an instant Personal Loan online and miss a payment, the loan provider will charge a penalty, which can vary depending on the loan provider, but it is typically a percentage of the unpaid amount. For example, if you owe ₹100 and miss a payment, the penalty might be ₹10.
The penalty is meant to discourage borrowers from missing payments, which can significantly increase the loan cost. If you are having trouble with payments, contact your loan provider to discuss your options before missing a payment.
Pre-payment Penalty
A person may choose to either repay or foreclose an online instant Personal Loan if they have available funds that can be used to repay the loan. However, lending institutions do not prefer this practice due to the loss of interest income from the loan amount. Consequently, the loan provider will charge you a foreclosure fee of 2% to 4% of your loan amount.
In addition, foreclosure fees may vary depending on the stage of repayment. The foreclosure process is quite simple, as the loan provider will only request that you repay the loan amount within a specified period.
Goods and Service Tax
Loan providers offer several services to their customers during the loan process. The applicant will be required to pay taxes on these services. Therefore, the lending institution will charge the customer for goods and services tax based on the services provided.
Duplicate Statement Fees
A duplicate statement fee is charged when a loan provider needs to send you another copy of your loan statement, either because you lost the original or because they made a mistake on the first one.
Also, these statements allow you to check the number of outstanding loans. The lending institution provides these statements as part of the paperwork.
Conclusion
To conclude, applying for a Personal Loan online can bring about charges that vary depending on your loan and your chosen loan provider. It is advisable to explore and compare offers before choosing a Personal Loan. Always read the fine print and understand all the fees associated with your loan before signing any paperwork.
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