Need emergency cash? Check processing fee before taking personal loan

Some lenders may keep interest rates low to lure borrowers but charge a high processing fee

• Personal loans can be helpful in emergencies for a number of reasons. With quick approvals, no collateral requirement, no restriction on end-use of funds and pre-approved offers, it certainly can make life easier. 
• However, 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
• There is also a tendency to take a higher amount because the loan comes easily. But stick to the amount you really need 
• 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 others
• Take recourse to personal loans only for pressing financial needs. Avoid taking them for things like leisure travel or to buy expensive gadgets