Loan Agreement: While signing the loan agreement, definitely check these 5 things..

Taking out a personal loan is common these days. Banks and NBFCs offer a variety of offers, and people readily take loans to meet their needs. However, people often make a big mistake: they sign the agreement without reading it thoroughly. This then leads to hidden conditions, increasing the debt burden.

In fact, before taking out a personal loan, one should not only focus on the interest rate and EMI. Many other hidden charges and terms can cause significant losses later. Therefore, every borrower should understand these terms before signing the agreement.

1- Understand the Personal Loan Details

The first and most important thing is to thoroughly understand the details of the personal loan. Often, people are simply delighted by the loan amount and interest rate, only to later discover that the actual cost is much higher.

Loan Amount: Check the loan amount the bank is approving. Taking on an excessive loan can also be detrimental, as interest is charged on it.
Interest Rates and APR: It's important to consider not only the interest rate, but also the APR (Annual Percentage Rate). This includes processing fees, charges, and other expenses.

Repayment Schedule: How much will the EMI be, how many years will it be repaid, and whether there will be a penalty if you repay early—check all these things in the agreement.

2- Avoid Hidden Charges
Banks and lending companies often don't clearly disclose charges initially. These can later disrupt your budget.

Processing Fees: This is typically 1-3% of the loan amount.

Late Payment Penalty: If EMIs aren't paid on time, a charge of ₹500 to ₹1,000 can be levied. Sometimes, this charge increases steadily.

3- The Long-Term Trap
Longer tenures result in lower EMIs. People think it's cheaper, but the reality is the opposite.

For example:

3-year loan - higher EMI, but lower total interest
7-year loan - lower EMI, but higher total interest
So, don't be happy just by looking at the EMI; check the total cost.

4- Legal and Documentation Clauses
Every loan agreement contains legal points, but many people don't read them.

Default Condition: It's important to understand when the bank will declare you a defaulter.

Stamp Duty and Documentation Fees: These charges are often significant.

Dispute Resolution Clause: If a dispute arises, it's important to be clear about which court or authority to approach.

5- Your Rights in Loan Disputes
Many people think they have no say in a loan dispute with the bank. But this isn't true. A complaint can be filed with the Banking Ombudsman. The RBI has protected the rights of loan borrowers. If a bank charges unreasonable fees or violates rules, you can complain.

Take a loan responsibly.

Try to keep your EMIs to no more than 30% of your income.

Make a complete plan using an EMI calculator.

Be sure to consult a financial advisor before taking a loan.

Conclusion
Personal loans offer immediate relief, but if taken without understanding the terms, they can become a debt trap. Read every line of the agreement, understand hidden charges and penalties, and only then sign. Remember, a loan taken wisely gives you strength, but a hasty loan can ruin your financial health.

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