With the rushing and bustling modern-day life, many financiers consider personal loans the means to meeting pressing cash requirements or rendering finances to milestone life events such as weddings, holidays, or fixing up an abode. Personal loans are flexible and easy but must be applied for with a keen sense of reasoning to avoid making costly mistakes. Below are seven common errors to look out for when applying for a personal loan.
1. Borrowing Without Shopping Around Loan Offers
When you immediately need cash, it is understandable to engage in a hasty decision without considering the personal loans offered. You could end up taking out a loan with worse terms or a greater interest rate. All lenders may not be equal in rate of interest, term of repayment, or service charge.
Before making an application, compare several loan proposals of banks, NBFCs, and online lenders very carefully. Calculate your monthly payments using an EMI calculator and choose a lender that provides the best repayment facility.
2. Ignoring Your Credit Score
Your credit score is a significant consideration that decides your loan eligibility, interest rate, and overall loan sanction. One of the typical errors applicants commit is not verifying their credit score before a personal loan application.
If you have a poor credit record, your lenders will look to charge you more interest or reject lending money to you. Check your credit report and clear issues like outstanding payments or negative points on your report prior to applying for your personal loan. The better grades that you get on your credit score, the higher the chances of getting a good interest rate on your personal loan.
3. Taking Out More Than You Require
– It could be an attraction to borrow a loan that is more than your actual requirements, particularly if lenders are willing to lend you excess money in accordance with your income. But it won’t only increase your economic burden, it will also incur you more in the long term due to the increased rate of interest.
Instead, calculate exactly how much you must have to meet your financial targets and maintain that amount unchanged. Use an EMI calculator to get an estimated monthly installment for your preferred loan amount in order to plan your repayment schedule more effectively.
4. Missing Other Charges and Fees
– For the most part, the borrowers pay attention to the interest rate and not other personal loan charges. The lenders can charge processing fees, prepayment fees, late payment fees, and other fees which may significantly add to the loan cost.
Carefully read the terms and conditions very well and request your lender to keep all such charges separate from you in the very initial stage. This will make you aware of the actual amount of the loan and allow you to make an appropriate decision.
5. Choosing Larger Repayment Tenure Without Sufficient Planning
– Although longer tenors of repayment may lower your EMI amount per month, they also translate to paying interest for a longer period, hence increasing the overall cost of the loan. Most borrowers tend to choose very long repayment tenors without considering time value of money.
Consider your earnings, monthly outgoings, and onward repayment capability prior to finalizing the tenure of your loan. Use an EMI calculator to check how monthly instalments and total interest thereby paid would vary for different tenures. Strive for a decent EMI and shorter tenure to incur lower costs.
6. Not Reading the Fine Print
– Loans on personal contracts tend to have extremely rigid terms and conditions that the borrower may not read because they are too complicated. Not reading between lines, though, incurs some cost in the form of bringing some unpleasant surprises later on. For example, some loans come with prepayment restrictions, increased penalties for EMIs defaulted, or plain old variable rates of interest instead of fixed rates.
Always read the loan agreement very slowly and pose questions if you have any with your lender prior to signing. Awareness of all forbiddance and requirements will save you from financial difficulties later on.
7. Simultaneous Application at Different Lenders
– In order to have more chances of having the loan granted, some borrowers submit their applications to various lenders at the same time, believing it is the fastest way. But each lender may make a hard inquiry against your credit history, decreasing your credit score and giving a negative impression.
Rather, limit your choices and submit only to the lender with the best terms and most suitable for your needs. Reducing the applications will help you prevent harming your credit record and simplify the approval process.
Conclusion
It is an easy and satisfying exercise if you go about it rationally and avoid traps. Starting from the comparison of your options to using tools such as an EMI calculator and comparing fees, all these measures will guarantee that you make the right decisions and remain financially fit.
By avoiding these seven errors, you ought to be able to obtain access to a personal loan that you can afford and, most importantly, ideally tailored to your requirements. Be careful and do proper research, and an effective personal loan application will be yours. Begin today!
