Personal Loan: Top 10 Mistakes You Should Avoid

A Personal Loan is an easy answer to your immediate financial needs. And with hassle-free online processes and pre-approved offers, taking a Personal Loan has never been this easy. However, you need to be cautious when applying for a Personal Loan, as a single mistake can lead to big financial trouble. Lack of awareness and carelessness, when applying for a Personal Loan, can lead you to a big debt trap and create a financial crisis that may severely impact the future of you and your family. Here’s a list of pitfalls you should avoid so that you are able to manage the debt comfortably

1. Not considering your repayment capacity

While a Personal Loan can help you get out of financial crisis, it may also cause one. Before applying for a certain loan amount, ensure you have the ability to pay it back. Do not borrow beyond your affordability.  Use online EMI calculators to decide the loan amount, in accordance with your repayment capacity, before you apply for the loan.

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2. 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.

3. Not disclosing existing loan details

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.

4. Skimming through the paperwork

Read the fine print carefully to understand all the terms of conditions of the loan. Examine the agreement thoroughly to know the applicable charges and interest rates. It’s crucial that you understand all the clauses to avoid any chance of being charged unnecessarily later.

5. Not comparing the options properly

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.

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6. Opting for a longer tenure with lower EMIs

Borrowers often tend to opt for a longer tenure for repayment of loans due to lower EMIs. But, remember the longer the loan repayment tenure, the higher amount you pay. It is advisable that you choose the shortest loan tenure possible, depending on your monthly repayment capacity.

7. 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, chances of your loan application getting rejected is high. This rejection will further bring down your score. Hence, it’s important to evaluate your credit report before you apply for a loan.

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