Personal Loan: Are you taking out a personal loan for the first time? First, understand the meaning of these 10 terms..

It's often seen that most people apply for personal loans, gold loans, home loans, credit cards, and other types of credit lines without understanding them thoroughly. Before taking out any loan, it's important to thoroughly understand its agreement, key terms, and rules. Let's explore the meanings of 10 important loan-related terms everyone should know.

1. Principal
This is the actual amount you borrow from the bank or loan company. Interest is charged on this amount, and this amount decreases as you pay installments.

2. Interest Rate
This is the percentage charged on the borrowed amount. This can be fixed (non-changing) or floating (changing according to market rates). The interest rate is a major factor in choosing any loan.

3. EMI
EMI stands for Equated Monthly Installment. This is a fixed amount paid each month that includes both principal and interest. EMIs are structured to ensure easy repayment over the entire loan term.

4. Loan Tenure
This is the period over which you have to repay the loan. For longer tenures, EMIs are lower, but the interest payment is higher. For shorter tenures, EMIs are higher, but the interest payment is lower.

5. APR (Annual Percentage Rate)
This represents the total annual cost of the loan. It includes interest as well as all other charges. Looking at the APR gives you an idea of ​​the actual cost.

6. Prepayment
Prepayment means paying off the loan amount ahead of schedule. This reduces the interest burden. However, the bank or company may sometimes impose penalties, so it's important to understand the terms in advance.

7. Processing Fees
The fee charged by the bank during the loan approval process is called a processing fee. This fee is either deducted upfront or added to the loan amount. It's important to compare the fees of different banks before choosing a loan.

8. Foreclosure
This means closing the loan prematurely. This requires paying the remaining principal plus a foreclosure charge.

9. Collateral
This is the asset pledged against the loan, such as property, gold, or a fixed deposit. If the loan is not repaid, the bank can sell the asset to recover its funds.

10. Loan-to-Value Ratio (LTV)
This indicates how much the bank is willing to lend compared to the value of your property. A lower LTV indicates a lower risk for the bank. The interest rate and loan terms are decided on this basis.

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