Once in everyone’s life, the need to take out a personal loan arises. It will help if you are sure that is the right path. It would be best to think twice before opting for a personal loan contract. It may be something that will have a long-term impact. One of your burning questions is, what if I want to return it? You should know the answer to it before making that decision. There are ways you can handle a personal loan. Read on to know the details.
Can you return a personal loan?
There are no refunds for personal loans once the money has been put into your account. As long as you don’t sign for the loan, you can back out at any time. Refinancing a mortgage, however, is not considered a personal loan. The loan’s due date may be extended for a limited time, although this will vary from one lender to the other. Lenders are under no obligation to provide this option.
To find out if your lender provides a grace period, you should inquire with them. Even if you can’t get out of the loan, paying it down is always an option. However, there is a minor catch. Read on to understand with an example.
We lent you ₹5,000 at 10% interest. Fees on your loan reduce the amount sent to your account (₹4500). You owe the loan of ₹5000 in total. The interest for the period you keep the money is also added to the payback. For payment of the loan fully, you need to pay the whole amount with interest. It may take out your funds as well.
The process to pay the personal loan early
- There are no penalties for prepaying a loan. There may be additional charges if you choose to repay your loan ahead of schedule.
- Always read the loan contract properly. All fees and interest rates associated with your loan must be spelt out in the contract.
- A lender may impose a fee for paying off a loan early. When you pay back the borrowed funds ahead of time, the lending company will take a fee. The interest you pay on a loan is how the lender turns a profit.
- When you prepay a debt, the lender loses money. If they lose money, they could charge a fee to make up for it. Pay close attention to the fine print before signing any contracts. Not all lenders will charge you this cost.
Prepayment penalty
The top providers of personal loans typically do not impose a fee for early repayment, but many others do. The loan’s interest rate was calculated based on the lender’s expectations. He was earning a certain profit from the loan. Lenders stand to lose money when a loan is paid off early. Some lenders impose a prepayment penalty to compensate for the loss. There are three possible ways to account for it:
- A one-time fee
- A fraction of the total loan amount
- Amount of interest lost by the lender because the loan was paid off early.
Loans with Early Payment Facility
You should be able to locate a personal loan that works for you from the many that are out there. A loan is classified as either secured or unsecured based on the collateral provided.
- Unsecured loans for personal use are the norm. As a result, they are not able to provide any form of security for the loan. There is a higher interest rate since they pose a greater risk to the lender.
- Secured loans are backed by collateral. Collateral is a valuable asset that is pledged as security for a loan. To protect themselves from default, lenders often ask for security to be paid as loan default.
Consequences of Personal Loan Default
Defaulting on personal loan debt is a terrible idea. One who defaults on a loan has ceased making required payments. What constitutes a default is defined differently by various lenders.
- You may be considered in default with some lenders after missing just one payment. Before declaring you to be in default, some lenders give you a grace period of up to six months.
- Regardless of how the lender defines default, you should take every precaution to avoid it.
- Moneylenders will not rest until they are repaid. They may hire a third-party collections agency. They could file a lawsuit to demand payment.
- Lenders incur more expenses due to going to court. They can chalk this expense from you.
The application process for a personal loan
Applying for a personal loan requires paperwork regardless of the lender type. If you like, you can also do this over the internet. Submitting your application online saves time and effort. Typically, there are fewer questions on these kinds of applications. If you submit your application in person, a loan expert will most likely assist you in completing the application.
After filling out the loan application, you’ll need to provide supporting paperwork. Financial institutions review the paperwork you submit, focusing on specific details. They are keen on your salary. They will seek assurance that you have a stable source of income from which to repay the loan. They also want to make sure that your salary is sufficient to pay back the loan.
Required forms for a personal loan
Whether you apply for a personal loan online or through a traditional bank, you will likely be required to fill out similar paperwork. Lenders count on you to submit the required paperwork when it’s due.
- First and foremost, the lending institution requires verification of your identity. Both you and the lender benefit from this safeguard.
- Your photo and name should appear on this official document.
- A passport, driver’s license, or military ID all qualify. Identification must be current and not expired.
- Providing income documentation is required.
- Bank statements, tax paperwork and forms all qualify as acceptable alternatives.
Conclusion
The greater one’s credit score, the wider one’s selection of available personal loan types. Those with stellar credit scores may qualify for personal loans with no costs or penalties for paying them off early. That’s because you become the type of borrower who would pay or prepay the loan.
You should always improve your credit score if it is low so that you become a highly desirable borrower. The benefits far outweigh the time and effort required to achieve them. For more details on payment of loan or foreclosure, visit the Piramal Finance website and get assured assistance.
