You will often receive one e-mail per week about pre-approved or instant unsecured loans. Banks can make you feel like the offer is tailored to you by their creative departments. Don’t fall for the appealing advertisement. Personal loan should be avoided to the maximum extent possible. These are some things to remember if you need a loan for an emergency.

Flat Interest Rate, or Reducing Balance Interest rate
Don’t just fall for the lowest rates of interest. Ask about the interest rate of the loan. Flat interest rate loans typically offer lower rates of interest. But that doesn’t mean you will be paying less. The following post contains more information about reducing balance interest rates and even rate.

Compare the All-In cost
The interest cost is only one of the costs you must bear. There are many other costs. The following are some of the charges.

Banks charge a processing fee of up to 1-2% of the loan amount. Some lenders charge a flat processing cost. These charges increase the total loan cost. The lower the processing fees, the better.

Prepayment fee: You may need to take out personal loans in order to meet short-term cash needs. Prepayment of a loan can be a good option in these situations. Prepaying your loan early can help you save absolute interest costs. Prepayment penalty fees may apply if you are in the same situation. The prepayment penalty is used by banks as a way to make sure that borrowers do not default on their loan. It also helps them to bear the total interest costs. The lower the prepayment penalty, better.

Late Payment Fee: Credit institutions impose late payment fees (penalty) if you fail to pay your EMI payments. This penalty is also applicable if you are having trouble with cash flow.

When borrowing, consider your needs and not eligibility
You can only borrow Rs 3 lakhs if you have a short-term need of Rs 3 crores. Sometimes bank executives will try to convince customers that they can borrow more (say Rs 5. lacs), just because you’re eligible. For the same, you will want to receive e-mails or cold calls from loan providers/credit institution. Personal loans are one of the most costly types of debt. Why do you need to pay interest for the money you don’t need? Don’t fall for the ego massaging sales hype. Only borrow as much as you require.

Find Better Rates
You can shop around to get better rates. You should not affect the rates. This can lead to difficult enquiries about your CIBIL score which may negatively impact your credit credit score. By calling customer support, you can check the prevailing rates.

Make sure you can service the EMIs
Be truthful with yourself. You are the best person to know your ability to repay. Not even your bank does. You should conduct a true assessment. Don’t take out a loan if your ability to repay the EMIs on a personal loan is not possible. Talk to your family and friends. You can also be penalized for not paying EMIs. This will affect your credit score.

Before you apply, make sure to check your CIBIL Score
When approving loans, banks and credit institutions will consider your CIBIL score. A poor credit rating could result in your loan application being denied or increased interest rates. It is a good idea to check your CIBIL score prior to applying for any loan. CIBIL credit scores may be obtained instantly, for a small fee.

Avoid Add-On Offers
Banks sometimes offer extra products like accidental insurance coverage while they sell personal loans. The bank tells you that there is no upfront cost. You can add the insurance premium to your EMI. Simply tell NO. You also have to pay insurance premium interest. Anybody can be forced to take out a personal loan due to their financial situation. If you fall for such add-ons, there’s no excuse. You are not the only one responsible. This is just one example of accidental insurance. You might find many other add-ons. Learn how to say no to such add-on offers.

Talk to your Family and Friends
You may be able to borrow money from family or friends to cover short-term cash needs. Perhaps, they won’t even charge any interest. But make sure you return the money exactly as promised. Otherwise, you could end up jeopardizing the relationship/friendship. You should be open with your friends and family about your ability for repayment.

Avoid Personal Loans
Avoid unsecured loans, unless absolutely necessary. Sometimes, a personal loan is necessary due to a cash crunch. Personal loans for vacation or the latest gadget are a no-no. With the exception of credit card debts, individual loans are the most expensive type of debt available in formal banking. The interest rate can vary between 12% and 30% per year. These loans should be avoided to the greatest extent possible.

If you have an emergency, don’t take out a sbi personal loan. Before you sign the dotted line, make sure to read the terms and conditions. Don’t just accept the interest rate. For comparison, consider the total cost.