Mistakes You Must Avoid While Taking a Personal Loan

Applying for a personal loan can be a smart choice, while handled effectively and responsibly. There are few common mistakes that people make which results in loan rejection, dip in credit score and even stress. Therefore, if you are planning to apply for a personal loan to meet short-term needs, it is important to know and avoid the common mistakes. Ignoring these mistakes might end up, you paying a lot extra to the lender with low credit score. Read on to know everything about the common mistakes that you need to avoid while applying for a personal loan.

Not Comparing from Banks/NBFCs/Fintech Lenders

Always research and compare from multiple lenders before applying for a personal loan online. This practice helps you in availing loans at lower interest rates, larger loan amounts, flexible repayment tenure, as well as minimum fees and charges. Not comparing the offered personal loan interest rate and finalizing randomly on any loan product could lead to higher costs. 

Not checking your Credit Score

Your credit score directly affects your loan eligibility and interest rates. Do not apply for a personal loan without checking your credit score, as it may lead to loan rejection or approval at higher interest rates. Check your credit report regularly for errors or faulty/incorrect information and report it at the earliest to the respective credit bureau or Credit Information Company (CIC) to avoid any further dip in your credit score. Also, try to improve your credit score by paying EMIs and credit card dues in time. This exercise may improve your credit score and enhances the chances of loan approval. 

Borrowing more than required

This is the biggest mistake that borrowers make by borrowing an extra amount than required. Even if you are a pre-approved customer of a bank/NBFC, then also you should not take loans of higher amounts than required. As a result, you might end up overspending and paying more on interest rates. In addition, you need to check your affordability before applying for a personal loan, as it is crucial for making effective financial decisions. It also helps in identifying your borrowing capacity and prevents overspending.

Applying for multiple loans simultaneously

Applying loans or credit cards with multiple lenders simultaneously or in shorter duration can lower your credit score drastically, as it depicts you as credit hungry, and further affects your loan approval chances. 

Providing Incorrect or false information

If in case you do not have valid proofs or documents, do not provide incorrect details of your identity, address or income proof, as it can delay the loan process or might result in a rejection from the lender. You are advised to double-check your documents and be honest with the bank/NBFC.

Overlooking terms and conditions

Ignoring the terms and conditions mentioned in the loan agreement could lead to unexpected fees, penalties and unfavourable clauses. Read all the terms and conditions of the loan agreement before signing it. Remain well aware of all the hidden charges, processing fees, late payment fees, and cancellation/documentation charges, prepayment/foreclosure charges, etc. while applying for a personal loan or any loan.

Not choosing apt repayment tenure

Choose your repayment tenure wisely and as per loan amount, because longer repayment tenure means lower EMIs and vice-versa. Do not choose it blindly, as longer tenure might lower your EMIs but shall increase the total interest amount. Always use a personal loan EMI calculator and choose the repayment tenure as per your financial situation and repayment capacity.

Key Takeaways:

Getting your personal loan approved is a big relief but if it is rejected because of a minor mistake can ruin all your financial plans. Avoiding common mistakes like missing EMIs, not checking credit score, borrowing without comparison, ignoring the terms and conditions shall help you avail personal loans at competitive interest rates and affordable EMIs. Always know your needs and costs involved and ensure you have a concrete repayment plan in advance. If you follow these measures, personal loan shall become a stepping stone, not a setback, in your financial journey.