How to Avoid the Personal Loan Traps!

Financials ups and downs are very common for every person or institution and no one can claim that they never faced such situations. May it be the richest person of the country or the top financial institution, everybody had to face such situations now or then when they need a financial support. The financial support in most of the times comes as a credit. According to the needy, only the form of credit is changed. When a credit is availed by a person for personal use, it is called a personal loan. 

It is true that they help us in fighting cash crunch but not to forget the fact that they come with some hidden traps too. Let’s see the personal loan traps and the ways how we can avoid them.

Personal Loan Traps

1)Origination Fee

The origination fee or the processing fee of a loan is an obvious expenditure associated with any kind of loan. But it matters how much your lender is charging you. The lesser known fact of a personal loan origination fee is that the origination fee/processing fee of every lender differs. Sometimes lenders claim the processing fee to be higher because of your low loan eligibility, tenure or the credit score. Generally, lenders impose a processing fee of 2% to 5% of the principal amount. When your loan amount is big, even 1 percent more also brings an impact.

How to Avoid

To avoid this trap, you will have to research on lenders to find the lowest processing fee. You can even call the lenders for a better clarification on fees and charges. If you do an online research, you will get the phone numbers of the lenders easily in their websites and can make calls too.

2)Prepayment Fee

Personal loans allow prepayment of the loan before the tenure. This means that you can prepay your loan whenever you will have enough liquid fund and get rid of the loan burden.

Till a few years back, prepayment was chargeable and the borrower had to pay some amount as prepayment charges. But presently, the prepayment is no more chargeable. If your lender asks for prepayment charges when you want to have a loan prepayment, understand the fact that you are getting into the trap of the lender.

How To Avoid

 To avoid such type of traps you have to be updated with the rules and regulations of RBI which is the governing body of all financial institution of our country. You are to keep your eyes open all the time as long as you are under a loan.

3)Late Payment Penalty

Late payment penalties are chargeable when you pay your EMI late. If the bank account with which your loan EMI is linked has less money on the day of EMI deduction, you will have to pay a penalty for the same while paying the next EMI.

How To Avoid

 The single and simple rule to avoid this trap is to have the adequate amount in your bank account and have the EMI paid on time.

4)Increased Interest Rate

The Interest rate is the next trap where any lender can be stuck. Just like the processing fee, the interest rate of different lenders can vary.

How To Avoid

Avoiding this trap needs your market research on the all available lenders. You can even have a conversation with your lender too for a lower interest rate if your credit score and credit history both are excellent.

5)Tempting Offer

To attract more and more borrowers, most of the times online personal loan lenders seem to come up with attracting offers on loans. Such offers attract us and once again we become the prey of the marketing strategy of the lenders.

How to Avoid

To avoid this trap you are to go to the depth of the offer and I am sure that no lender will lend you money when there is no profit for them. Try to find out the hidden clause of the offer and you will be free from the trap.


Personalloans are undoubtedly a much useful tool  to fight urgent cash crunches. But we are to be smart enough so that the these personal loan traps can make no harm to us and we can enjoy the benefits of it at its best.


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