Why you should avoid personal loans with high processing fee, low rate

To lure borrowers, some lenders may keep interest rates low but charge a high processing fee

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• With quick approvals, no collateral requirement, no restriction on end-use of funds and pre-approved offers, personal loans can be helpful in emergencies
• A personal loan at the lowest interest rate may not always be cheaper. Along with interest rate, check the processing fee a bank is charging
• If you are taking a Rs 100,000 loan for one year at 15 per cent, your interest outgo will be Rs 8,310. If the lender charges you Rs 3,000 as processing fee, your total outgo will be Rs 11,310. If you look at it another way, you have paid 20.25 per cent interest on your loan
• A processing fee of Rs 1,000 will translate into an overall interest rate of  16.76 per cent, including processing fee and interest outgo
• As personal loans are easy to get and are disbursed quickly, many borrowers tend to take a loan higher than the amount they need. Stick to the amount you really need. Don’t go overboard.
• As they have a high-interest rate and short repayment tenure, your equated monthly instalments (EMIs) could be large and may affect cash flows
• Before taking a personal loan, always check if there are other ways you can raise money at cheaper rates, such as via top-up home loan, overdraft facility on a fixed deposit, and so on
• Take recourse to personal loans only for pressing financial needs. Avoid taking them for things like leisure travel or to buy expensive gadgets