Personal Loan: People often do not pay attention to these 6 things while taking a personal loan, later they have to bear the brunt..

A personal loan is an easily available loan, hence it is called an emergency loan. When you need money but are unable to arrange it, you can arrange the money through a personal loan. But many people take personal loans without thinking and later regret when they have to pay a hefty EMI. If you are also thinking of taking a personal loan, then definitely pay attention to 6 things, so that you can understand its pros and cons and you do not have to regret your decision later.

1. High Interest Rate

A personal loan is an unsecured loan, that is, you do not have to mortgage any property for it. Due to this, the risk is high for the bank and they charge a very high interest rate to compensate for it. This rate can usually be from 10% to 24% or even more, which is much higher than a home loan or car loan.

2. Negative Impact on Credit Score
If you fail to pay your EMI on time, your credit score (like the CIBIL score) falls very fast. Having a bad credit score can make it very difficult for you to get another loan (like a home loan or a car loan) in the future.

3. No Tax Benefits

You get income tax exemption on the interest paid on a home loan or education loan. But you usually do not get any tax benefits on personal loans. This means that you pay the entire amount from your pocket and are not able to save any tax.

4. Risk of Debt Trap
Personal loans are easily available, and people often take them for non-essential expenses (like holidays, and expensive gadgets). But if it is not managed properly, then the person starts taking another loan to repay one loan and gets trapped in the debt trap.

5. Additional Fees and Hidden Charges
Not only interest, but many other charges are also associated with personal loans, such as

Processing Fee: It can be from 1% to 3% of the loan amount.

Pre-payment Charges: If you want to repay the loan before time, the bank can charge you a penalty.

Late Payment Fee: There is a heavy penalty for repaying EMI late.

GST: GST is also levied on all these charges, which makes the loan more expensive.

6. Short Repayment Tenure
The repayment period of a personal loan is usually short. In most banks, it is 1 to 5 years. However, in some places it can be 7 years as well. A shorter tenure means your EMI amount will be higher, which may put a strain on your monthly budget.

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