5 Questions You Must Ask Before Taking a Personal Loan

What should I check before taking a personal loan?

Before taking a personal loan, you should review the Annual Percentage Rate (APR), ensure the lender provides a Key Fact Statement (KFS), verify the identity of the regulated lending entity, assess your ability to afford the EMI, and check whether any prepayment or foreclosure charges apply.

1. Have You Reviewed the Key Fact Statement (KFS)?

The KFS is your most important document. It standardizes the disclosure of all loan terms. Never sign a loan agreement digitally or physically without first receiving and reading the KFS.

2. What is the True Cost (APR) of the Loan?

Do not just look at the interest rate. Check the Annual Percentage Rate (APR) listed in the KFS, which includes processing fees and other upfront charges, giving you the true cost of borrowing over a year.

3. Is the App Partnered with a Regulated Entity?

Ensure that the Digital Lending App (DLA) clearly discloses its partnership with a Bank or an RBI-registered Non-Banking Financial Company (NBFC). The loan is provided by this regulated entity, not the app itself.

4. Can You Comfortably Afford the Monthly EMI?

Calculate your monthly cash flow. Ensure that paying this new EMI will not compromise your ability to pay rent, utilities, and existing debts. Over-borrowing can lead to a debt trap.

5. What are the Prepayment or Foreclosure Terms?

Check whether any prepayment or foreclosure charges apply and where they are disclosed. Knowing if you can pay off the loan early without excessive penalties gives you financial flexibility.

Frequently Asked Questions

Should I take a loan for discretionary spending?

Personal loans are best utilized for emergencies, essential expenses, or debt consolidation rather than discretionary spending like luxury vacations.

Read more: Best RBI-Registered Loan Apps | How to Get a Personal Loan