Types of Loans
Things to Keep in Mind while Taking a Loan
By the end of this module, we have learned the different types of loans available in India. Not only that, what are their characteristics and the purpose of taking each type of loan. Sooner or later, we might take up a loan for ourselves too. In contrast, the real-world scenarios might be a little different from what we have learned. So, to be ready for every situation of our lives in the last unit, we will learn a few things that we should keep in mind while applying for any type of loan.
There are innumerable banks and NBFCs and almost all of them offer all types of loans mentioned in this module. For someone looking to avail of a loan, it is easy to get flustered with so many offerings.
Here are a few things that you should consider while choosing a financial lender and its offering:
Trustworthy and Credible
First and foremost, ensure that your lender is trustworthy and credible. You need someone who will not impose fees and extra hidden costs during your repayment term. Your lender should be able to give you full facts of your borrowing even before you apply for the loan. A general rule of the thumb is going for a reputable bank or NBFC who have been in operations for a long time. New institutions or lesser known ones may offer a lower interest rate at the beginning, but they almost always add hidden costs later on.
Of course, this is the single most important factor while choosing a lender over another. Interest rates determine how much you end up repaying for the loan and hence, the lesser the interest rate the better. Interest rates become more important if you are taking a loan at a fixed rate of interest such as a personal loan or an auto loan.
Consider the flexibility the lender is going to offer in the payment schedule. For example, what are their late payment fees? Are there any prepayment fees? If you want to close the loan early, are there any penalties? Opt for the lender who provides maximum flexibility.
When you take a loan from a financial institution, you will have to interact with them for a long time. It can be as long as 20-30 years in case of a home loan. So you want a bank or NBFC who offers good and timely customer service. They should be responsive and be able to help you when you need it.
Ease of Documentation
One of the reasons why people rethink taking loans is lengthy documentation. Choose a lender who does not ask for unnecessary documentation. Some financial institutions ask for more documents than others. Speak to your friends and family and try to understand how cumbersome the documentation process is.