A personal loan often comes to the rescue during financial emergencies or to meet immediate needs. Personal loans can be extremely helpful as there is no restriction on end usage, they are quickly disbursed and do not require collateral. However, since it has implications on your financial future, you should be careful when applying for a personal loan. Here are the key factors you should consider before making a decision:

1. Interest rate: Though most lenders offer competitive interest rates on loans to attract customers, the rates still vary. The interest rate for personal loans usually ranges between 10.99% and 24%, depending upon borrower’s credit worthiness, income, age, employer etc. Hence, before signing on the dotted line, ensure you have compared interest rates offered by all lenders available for you.

2. Loan Tenure: The repayment tenure for personal loans usually varies from 1 year to 5 years. However, some lenders may offer even a longer tenure, for up to 7 years. Longer tenures imply lower EMIs and vice-versa. Those looking for lower EMIs should opt for a higher tenure, whereas those looking to repay and close the loan quickly should opt for a shorter tenure. But do remember longer tenure means paying more as interest.

3. Charges: Banks levy a number of charges including loan cancellation charges, documentation charges, repayment mode swap charges, collection charges etc. Penalties are also levied on non-payment or for delay in payment of EMIs. These charges vary from lender to lender. So, ensure you are aware of all charges before taking a loan.

4. Prepayment/Foreclosure: Some lenders levy charges on prepayment or foreclosure of loans. While many borrowers would want to reduce their loan burden by prepaying either in parts or in full, it is important to take note of the associated charges to decide whether to prepay or not. So in case, you may prepay the loan amount, look for a lender who’ll not levy prepayment charges.

5. Processing fee: This fee basically covers the various expenses incurred by the lender while working on your loan application, like the cost of credit checks, administrative costs, etc. This again varies from bank to bank. You should check this fee before finalizing your loan application as this may lead to a significant amount in case of big ticket-size loans.

(By Gaurav Aggarwal, Associate Director-Unsecured Loans, Paisabazaar.com)