Top Mistakes To Avoid When Applying For A Personal Loan
Avoid costly errors when applying for a personal loan. Our expert guide highlights the top mistakes to steer clear of. Get informed before you apply.
Personal loan is an easy solution to most of the financial crisis such as financing a lavish wedding or a medical emergency or making any large purchase. Personal loans are collateral free and get approved easily and quickly. A good credit score is very important to get this loan at an affordable rate of interest and better terms. However, you need to be cautious not to commit mistakes while applying for a personal loan else you may get stuck in a debt trap. Understanding the potential risks and pitfalls will help you avoid the debt trap and possible financial crisis.
Some Common Mistakes Committed While Applying For A Personal LoansFollowing are the common mistakes committed by the borrowers while applying for the personal loan:
• Not Checking Your Credit ScoreOne of the most important steps to execute before applying for a personal loan is to check your credit score. Credit score indicates your credit worthiness as well as lender uses it to determine the rate of interest. Thus, knowing your credit score is important so as to take an informed decision about your personal loans as well as to understand the terms available.
• Not Checking Your Repayment CapacityBefore applying for the loan check your repayment capacity. Decide upon the loan amount on the basis of your repayment capacity and try to keep the EMIs according to the comfort of your pocket.
• Making Too Many Hard EnquiriesWhen you reach out to a lender to avail a loan, the lender makes an enquiry for your credit history which is logged into your credit report. Such enquiries are called hard enquiries. Too many hard enquiries in short span of time affects your credit score negatively.
• Not Evaluating Different Offers From Different BanksSometimes in haste to get the cash for the emergency, borrower foregoes to compare the various rates of interest and terms available by different banks. It is recommended that you compare the loan offers of different banks online as a soft enquiry thus avoiding making a hard enquiry. By not looking around for all the options available may make you miss out on a better deal on the personal loan.
• Not Disclosing Existing Loan DetailsSince the loan amount majorly depends on your other existing loans, it is important to disclose them to the lender before getting a new personal loan approved. Hiding these details may result in getting your loan application rejected or getting the loan approved at a higher rate of interest.
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• Not Skimming Through The Fine PrintIt is important to read through the fine print thoroughly. Fine print includes applicable charges, other terms and conditions of the loan and interest rates. It is essential to understand all the clauses to avoid any surprise and unnecessary charges later.
• Opting For A Longer TenureOpting for a longer tenure even when the rate of interest is lower will make you pay a higher amount as interest at the end of the tenure. You should select the shortest tenure to repay the loan.
• Borrowing More Than You NeedBorrowers tend to borrow the loan of amount higher than they actually need just because it was available to them. This is a mistake since the higher the amount you take as loan; the higher will be the rate of interest as well as the EMI. A higher EMI may strain your monthly finances.
• Taking A Loan Without Any PurposeSometimes, people take a personal loan even when they can handle the particular financial need without a loan like going on a vacation or throwing a party. It is advisable to take a loan only in case of a real financial crisis.
• Not Checking The Eligibility CriteriaDifferent lenders have different eligibility criteria like income, credit score, residential area, age employment etc. You should check the eligibility criteria before applying for a loan with a lender. You will get an opportunity to improve your eligibility and reduce the chances of rejection.
• Miscalculating Fees and Other ChargesYou should be aware of the additional charges like origination charges, processing fees, late fees in case of delayed EMI or prepayment penalty that might increase your total repayment amount.
• Falling Behind Your Repayment ScheduleNot being able to pay a month’s repayment amount can cost you a hefty late fee and a decline in your credit score. A late repayment of more than 30 days gets reflected in your credit report further damaging your credit history.
It is important to manage your loans. Check your eligibility criteria, repayment capacity, additional charges and fees on the loan, terms and conditions offered by other banks to avoid any surprises after the disbursement of the loan. In situations where your credit score is being affected in a negative manner, you may take necessary steps to improve the credit score.
After deciding to go for a personal loan, it is ideal to compare lending terms of different lenders for better rates and terms. IIFL Finance offers personal loans that act as safety nets and helps you to focus on your financial needs. IIFL Finance personal loans come at affordable rates and flexible terms designed to meet all your needs. However, remember to make timely payments to improve creditworthiness and be eligible for better rates and terms on future loans.
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