Loan application is a daunting process, and a person who has made the application doesn’t know about the intricacies of finance. For that, they feel alienated when a loan agent discusses one of the terms that a customer has no understanding of.
In this blog, we will look into that problem, and through this, we will empower the customers by demystifying the loan jargon.
APR Unveiled: Understanding the True Cost of Borrowing
Most people get confused with the interest rate and the Annual Percentage Rate (APR), which are different from each other. It is the rate that contains the additional charges and provides the overall cost of borrowing.
The interest rate is the base rate that one needs to pay for the loan, and that determines how much the person will be paying as interest for the entire loan tenure. Meanwhile, APR includes the convenience fees and processing fees, which show how much the lender is charging for sanctioning the application.
Here, one can ask a DSA partner, who can state how much the lender is charging separately apart from charging the interest. This knowledge helps a person to gain an idea about the cost of a loan, and hence, they can decide from which lender they will take the loan.
Collateral: Tour Loan’s Security Blanket
Collateral is the underlying asset that helps a loan have a security net and thus helps a customer get the loan faster. In personal loans, there are risks of defaults, and banks and lenders do due diligence, and for that, the interest rate is higher on that kind of loan.
However, if a person is going for a home loan, then in that scenario, there is an underlying asset against the loan, which will act as collateral. Hence, in this kind of loan, where an asset is there that acts as a security against the loan, the interest rate is quite low, and hence, it becomes easy for the borrowers also to get the best terms.
Here, a customer can ask their agent to offer the best rates as they are keeping their house as collateral. Hence, customers will prefer to go to such banks that offer the lowest interest rates.
Grace Periods and Payment Terms: Navigating the Repayment Landscape
The grace period is something that a bank offers to the customers so that if they find minor problems, then the grace period is there, which will provide some relaxation to the customers, and that is beneficial for the one who is taking the loan.
Here, a person who wants to take a loan needs to check whether that lender provides any grace period or not. Suppose that borrowers are in a situation where they feel that they might need some time for repayment during unforeseen circumstances. In that case, they must check the lenders and find whether they include this policy in their terms and conditions.
Loan Origination Fees: Uncovering Hidden Costs
A customer needs to check the loan origination fees. Several online lenders suddenly increase the fee under this name, and that can be labelled as hidden costs.
This cost increases the total loan amount, but a person needs to pay the interest for the processing fees, which are included in the principal amount. A loan amount is the principal amount that you are demanding, but a lender can add an extra five thousand rupees to it, increase the total amount, and charge interest on the entire fresh amount.
Hence, it can be stated as hidden fees, which you might know after getting the loan. For example, one who has an HDFC DSA registration or from some other bank can list the hidden cost fees if asked.
Hence, the customer needs to know in depth about the hidden charges and find the right lender who can provide the loan at minimum costs. Hence, learning these terms becomes important as it helps a borrower reduce their loan application cost and get a better deal.