If you’ve been eyeing quick personal loans online to meet sudden financial needs, then there’s a crucial aspect that you need to focus on. We’re talking about the financial jargon attached to these loans. They often put off borrowers who remain confused about their final decisions.
This article aims to demystify this jargon for a better understanding of these loan products on your part.
Essential Personal Loan Jargon to Know
Whenever you apply for quick personal loans, these are some of the terms that you will come across:
Credit score
Co-applicant
Prepayment
Processing Fee
Refinancing
Eligibility
Loan Moratorium
Let us look at the explanations of these terms below.
Definitions And Explanations Of Each Term
Here is the lowdown on what these terms mean:
1. Credit Score- Your credit score is a three-digit rating that sums up your creditworthiness and reliability as a borrower. The score is issued by credit bureaus like CIBIL or Experian and updated periodically. It ranges between 300 and 900. The higher your score, the better your chances of loan approval. A score of 750 or more helps you get a personal loan with more favorable terms and conditions. Credit bureaus calculate this score based on your credit history, repayment history, credit utilization ratio, credit mix, and many other factors.
2. Co-Applicant- The co-applicant is the individual who applies with the primary borrower for the loan. Having a co-applicant like your spouse, siblings, or parents increases your eligibility for a higher amount and lower rate.
3. Prepayment- Prepayment refers to repaying the loan before the conclusion of its tenure. You can repay the loan in full or in parts. Most institutions charge a nominal sum as prepayment charges to cover their loss of interest for the remaining loan tenure.
4. Processing Fee- This is the fee charged by the financial institution to cover its administrative costs while processing your loan. It may be around 1-2% of the loan amount usually. Some banks also offer processing fee waivers to attract customers.
5. Refinancing- It means taking a new loan to pay off your existing outstanding loans. Hence, the terms and conditions of your current loans, including the tenures and interest rates, will also undergo revision. Refinancing may be possible from the same bank or a different financial institution. It often helps you get a lower rate of interest while consolidating multiple loans simultaneously.
6. Eligibility- It denotes the criteria of the lender for sanctioning personal loans. It includes the minimum and maximum age, income/salary, job security, and credit score/history necessary for the loan.
7. Loan Moratorium- This is a period during which you do not have to make any loan repayments. It is similar to an EMI holiday and is offered in a few scenarios.
Tips For Understanding And Using These Jargons Effectively
Be proactive about noting down these terms and finding their meanings. If you do not understand something, ask for help from the lender. The financial institution will help you gain more knowledge about this jargon. It will help you make an informed decision. Follow the pointers mentioned above, and they will help you when you examine your loan documents.
Remember to note the processing fees carefully since they add to the cost of your loan. At the same time, list down the prepayment charges if you plan to slash your principal amount in the future. The credit score and eligibility criteria require a detailed understanding before applying as well.
Conclusion
The world of finance has a lot of jargon, and personal loans are no different. However, investing time and effort will help you know many of these terms in detail. It will help you make better decisions while choosing loan products suited to your needs.
FAQs
1. Is there any lock-in period for personal loan prepayment?
Many banks and financial institutions have lock-in periods for prepayment. It means that you cannot repay the loan before this duration. It may vary between 6-12 months.
2. Can I have a co-applicant for my personal loan?
You can get a co-applicant for your personal loan to improve your eligibility and obtain a higher amount at a better interest rate. It is often necessary for those with lower income and credit scores.
