Breaking Down The Math In Instant Loans
Taking a personal loan is a straightforward process: research the loan product, submit your documents, get approval on the application and let the lender disburse the loan money in your account. But if you are a first-time borrower, you might be left confused by some of the jargon and numbers involved in the loan.
These are some of the terms you will come across when researching instant loans:
EMI: This is the monthly payment you make to the lender against the loan repayment. It is the same amount of money per month spread over the loan tenure, and it is a sum of the principal + interest on the loan.
Application processing fee: Some lenders charge a small fee for processing the application and checking the submitted documents. It is generally not more than 0.5% of the loan amount. The best personal loan apps in India charge processing fees depending on the loan amount and tenure.
Penalty/late payment fee: This is a fee that the lender levies on either paying the EMI late, or not paying it at all for a month or more. If you pay the first EMI late, you may have to incur a charge of 0.7% interest fee as penalty,
Amortisation schedule: This is a schedule outlining each EMI spread over its tenure. It shows how each EMI comprises the principal and rate of interest, to be paid till the loan is repaid in full till tenure. It also contains data on the EMI payment date, balance loan, balance principal and interest. This schedule helps you understand where you are placed exactly in the repayment schedule, and helps you know how much you still owe when you foreclose the loan. The lender adjusts the schedule with every repayment.
Credit score: Most lenders like Indian banks refer to the CIBIL score to check your credit worthiness. It is a number that determines your loan eligibility based on past financial behaviours, current income and age. A score between 750 and 900 points is considered a high score for approving the loan application. However, personal loan apps use not just this credit score but also their own AI-backed algorithms to arrive at a more intuitive and accurate score.
Interest rates: This is the rate at which the lender charges interest on the instant loan amount. Interest rates on personal loans are normally higher than those on home or car loans.
Conclusion
Having all the information about the loan is important – it helps you make the right decision when you choose one lender over another.
