Lending today is a thriving industry most financial organizations offer funds to customers looking to buy a home, a vehicle, commodities, travel, or for a vacation finance is available as needed. Banks issue various forms of credit in the form of Credit Cards, mortgages, consumer loans, Personal Loans, and Vehicle Loans.
When issuing a Loan, the Lender’s primary concern is to ensure the borrower will repay funds as per the schedule. Delayed repayment can cost the customer and the Lender dearly, which both want to avoid at any cost.
A Personal Loan is readily available to fulfill individual needs and emergencies,but borrowing an amount easily affordable to repay with the current earnings is the right decision.
There are no restrictions on using a Personal Loan, and it can be used by the applicant as desired. Banks issue funds as Personal Loans for personal expenditures without collateral or security with an individual policy for calculating the loan amount and interest rate applied. The Primary features for calculating the loan amount that can be issued to an applicant are as follows.
• The Monthly Income: The salary of the applicant transferred to the Bank account, is counted as the monthly earnings if additional sources of income are coming in regularly, provide documentary proof of the same.
• The Current Employer: The company the applicant works with should feature in the Lender’s company category list the loan amount approved and the interest rate are per the company’s categorization.
• The Existing Loans and Credit card usage, as reflected in the CIBIL, are taken as obligations and deducted from the income. The CIBIL Score of the applicant must be above the required benchmark.
The lender assesses the profile of the applicant and confirms the amount that can be issued as a Personal Loan. After the applicant accepts the terms of the lending organization the loan amount is transferred to the applicant’s account electronically.
When signing the agreement and accepting the terms of the lender, the applicant should pay attention to the terms for the repayment of the funds, paying attention to the monthly installment or EMI, the charges applied, and the total cost of the loan.
Before applying for a Personal Loan, it is essential to check all repayment terms to work out a suitable offer. Significant norms influencing the terms and conditions for a Personal Loan repayment include.
The Loan Amount: The loan amount the Lender approves as a Personal Loan after considering all related inputs, such as the amount applied for and the eligibility as per policy. The applicant should easily afford to repay the loan with the monthly installment fixed.
The Interest Rate: The interest rate or the cost of funds for a Personal Loan is 10.25% to 20%, charged at a monthly reducing balance, and is the primary cost of funds. Surveying the market for the lowest rate available will ease the Repayment.
The Repayment Tenure: for a Personal Loan or the period within which to repay the loan is 12 months to 72 months. The Bank decides the term according to the repayment capacity and profile of the customer. The EMI can vary with the tenure if the applicant desires a lower installment a longer tenure can be requested, whereas if the loan amount can be repaid sooner the applicant can ask for a shorter tenure.
A copy of the agreement signed, with all terms and conditions notified dispatched to the customer as a soft copy, and hard copies are sent through mail/courier services. Also included is a schedule for repayment of the loan Known as the amortization schedule or table, which reflects the amount paid as a monthly installment.The columns of the schedule include the following:
• What is the total number of EMI for the tenure of the loan?
• The installment.
• The break-up of each installment: ratio of the amount paid as the interest and principal amount.
• The total amount paid as interest or the loan cost.
• The remaining monthly balance of the principal Loan amount.
The initial installments include a greater ratio of interest as the loan amortizes, the amount going toward the principal increases and gradually grows monthly.
So factually, the EMI repaid is not equal the Bank first recovers a significant part of the interest and then the principal amount.
Though generally ignored, much is to be gained by keeping track of the loan repayment and loan amount balance with the help of the schedule.
The EMI, as it is popularly known, is the instrument to repay a loan it is deducted electronically from the Bank account of the loan holder on a designated date every month.
Whatever date the applicant receives the money, the EMI schedule begins in the consecutive month. However, applicants receiving funds after the 21st of the month will pay the installment after a month.
For example, for a Personal Loan transferred to an applicant’s Bank on the 23rd of February, the EMI is presented to the account on the 1st of April. A gap interest is charged from the 23rd of February till the 6th of March as an overlap.
It is the responsibility of the applicant to ensure that there are enough funds in the account to clear the EMI if the EMI bounces or is returned unpaid, the same will reflect in the records, with the following repercussions.
• Finance charges as late payment and interest are applied daily until the applicant pays.
• Details of the delayed EMI will always reflect in the repayment account, even if the applicant pays the installment later with the charges.
• The CIBIL history of the applicant will reflect the transactions of the delayed payment downgrading the score.
• Most Banks and financial institutions do not fund further credit to an applicant if there has been an EMI bounce three months before the application date.
Therefore, keeping a tab on the EMI date to ensure enough balance in the account to pay the installment is paramount. For further tips on how to avoid missing your EMI date, please refer to the following:
A Personal Loan is a finance issued for individual usage for short periods. Preferably, the applicant should pay the EMI over the tenure to gain maximum benefits. A Personal Loan tenure with timely repayments is the best method to build a Credit Score.
Repayment of your loan early in the tenure is not advisable, as the interest factor paid as compared to the principal deducted; however, if there is a need to repay the loan, whether partially or entirely at an earlier date, financers will have a policy for the time and finance charges.
• The minimum EMI paid or the lock-in period ranges from 6 months to a year, and a finance charge ranges from 2% to 5 % of the principal balance for the foreclosure of the loan.
• Partial repayment of up to 25% of the principal loan amount is permitted, the amount adjusted in the tenure, and the installment remains unchanged.
The charges applied for a Personal Loan foreclosure make it advisable to complete the tenure. However,an advantage of repaying a loan is the eligibility for borrowing a more considerable sum in the form of a mortgage or consolidating finances.
Individuals requiring funds for a limited period, expecting to receive finance, and planning to repay the loan, should pay attention to the terms for foreclosure and part payment and choose a financer with a flexible prepayment policy.
With widespread education and technology, there are increasing opportunities for qualified youngsters. Top companies offer enhanced salaries to qualified candidates as a start.
Banks and NBFC are ready to invest in individuals holding high-profile jobs with a promising future the term “Loans” is no longer a taboo today, a salaried individual can start planning finances, buying a home, and establishing a good lifestyle.
Be cautious and remember that borrowing is easy, but organizing finances to ensure timely repayment is critical to a successful financial future.
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