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Non-Banking Financial Companies (NBFCs) are now a favorite among individuals and businesses looking for financial support. They provide easy loan products with easy documentation and faster processing than traditional banks. Nevertheless, prior to applying for a loan from an NBFC, it is important to take certain precautions to steer clear of financial misadventures. The following are some key steps to take into consideration:
1. Verify NBFC’s Credibility and Registration
Make sure that the NBFC is registered under the Reserve Bank of India (RBI) and possesses a valid license to conduct business. A legitimate NBFC will also possess a Certificate of Registration (CoR) from the RBI. You may check this fact on the official website of the RBI to escape fake lenders.
2. Understand the Loan Terms and Conditions
Before entering into any agreement, read the loan terms and conditions carefully. Read the interest rates, repayment period, processing charges, foreclosure fees, and penalty for delay in payment carefully. Any additional fees can make the total cost of the loan quite high.
3. Compare Interest Rates and Fees
Interest rates levied by NBFCs may be higher than by banks. Compare interest rates of various NBFCs and opt for the best one. Also, look for processing charges, administrative charges, and other fees, if any, which may affect the amount borrowed.
4. Evaluate Your Repayment Ability
Examine your financial health before taking a loan. Make sure your income level is enough to pay monthly EMIs without causing any strain to your budget. Excessive EMI burden will result in missing payments, negatively impacting your credit score and piling up extra financial stress.
5. Assess Your Credit Score
NBFCs take into account your credit score while approving a loan. A better credit score (750 and above) can get you lower interest rates and more favorable loan terms. In case your credit score is low, work to raise it before applying to get approval.
6. Avoid Over-Borrowing
Borrow what you need and can repay easily. Over-borrowing can trap you in a debt cycle, making it hard to keep up with finances in the long term.
7. Avoid Unethical Practices
Certain NBFCs can indulge in unethical activities, like deceiving customers with regards to loan terms or pestering borrowers for repayment. Read reviews from customers and ask for referrals before selecting an NBFC. Always select lenders with a good reputation and clear policies.
8. Prepayment and Foreclosure Charges
If you intend to pay off the loan in advance, ensure that the NBFC does not have prepayment or foreclosure fees. A few lenders charge very high costs for closing the loan prematurely, which can spoil the advantage of prepayment.
9. Proper Documentation
Ensure that you get a copy of signed agreements, sanction letters, and repayment plans. This will assist you in case of any discrepancies or conflicts in the future.
10. Clarify Before Signing
If you are unclear about the terms of the loan agreement, request explanations from representatives of the NBFC. Do not sign an agreement without fully comprehending it.
CONCLUSION
It is an easy option to take a loan from an NBFC, but it needs to be carefully thought through. Through intensive research, evaluating your repayment capability, and making sure that there’s transparency in loan terms, you can make an informed decision about borrowing. Always look to the future first and select an NBFC that best serves your needs and ethical lending standards.