You can take a personal loan for any reason and generally it’s not a herculean task to get a personal loan, but having said that it does not mean you can act casual while applying them. Let us get familiar with the common mistakes that you need to avoid while applying for a personal loan.
Borrowing money that you cannot afford
It is easy for lenders to tempt you while you are borrowing money. In today’s world when technology is in the upper hand, you already have many options to apply for any loan but don’t commit the mistake of borrowing more than what you require. Borrowing more will result in difficulty of repayment and you need to avoid that at any cost. Instead, utilize the online calculators provided in your bank’s website that churns out the exact amount you require, no more and no less.
Opting for longer-term
The lender might be offering a longer-term for the personal loan, but it is not mandatory to accept it. Various banks and financial entities offer a personal loan with a maximum term of 7 years. If you opt for a longer-term, the repayable amount for the loan will also be higher.
You may feel good about the EMI in the longer-term, but at the end of the day you end up paying more overall. So, you must choose a short-term period instead of opting for a longer tenure.
Skimming through the paperwork
Read the fine print carefully to understand all the terms or conditions of the loan. Examine the agreement thoroughly to know the applicable charges and interest rates. You must understand all the clauses to avoid any chance of being charged unnecessarily later.
Not checking your credit report
The approval of your loan application depends on your Credit Score. Before applying for a loan, you must check your credit score and get any corrections required. Also, if your credit score is low, the chances of your personal loan application getting rejected are high. This rejection will further bring down your score. Hence, it’s important to evaluate your credit report before you apply for a loan.
Approaching too many lenders
Each time you seek a loan from a lender, a query is raised and it appears on your credit report along with the date. With each query, your credit score reduces.
When several queries are raised in a short span of time, you are considered as ‘credit hungry’, which reduces your chances of banks approving your loan application or may lead to a higher interest rate.
Taking a Loan without doing a market survey
Before choosing your lender, ensure you do thorough research on all loan options available to you. Compare interest rates, prepayment clauses, and applicable charges on loans from different banks and financial institutions. It’s best to use aggregators like Paisabazaar.com for maximum ease and transparency.
Not disclosing your existing debts
Details of your existing loans and other financial obligations must be disclosed to the lender because the loan amount will depend upon your commitment to other existing liabilities. If you try and hide these details, it’s likely to lead to rejection of the loan or higher interest rates.
Taking a loan without reading the documents
How often do you read the whole document while availing of any particular service? If you are signing the documents of your personal loan without reading them, then you are inviting trouble. It is quite simple; if you have signed the legal document without reading it then you will have to fulfill the obligations listed in the document. Make sure you have read and understood the loan’s terms and conditions including – interest rates, pre-closure charges, and pre-payment charges, etc. Take your time and ensure you don’t sign the terms and conditions in a hurry.
Credits cards are one of the biggest responsibilities in one’s life. You might have heard from people around you that credit cards are tremendous help but it is better to figure it on your own.