People who require cash, whether to meet personal objectives or address an emergency, frequently select personal loans as the preferable financial instrument. No pledge of collateral is necessary for a personal loan. Its popularity can be attributed, among other things, to its competitive interest rates, flexible payback terms, and potential for quick processing and delivery of loans.
However, you must make sound financial decisions when it comes to applying for any type of loan to avoid any unpleasant surprises later. When a financial crisis arises, personal loans are a popular way to take care of it. The interest rate for a personal loan could be higher than for other loan products, and a good credit score is important to get a personal loan at a lower interest rate.
We have put together 5 costly mistakes to avoid while applying for a personal loan. By knowing all of them, you can get the personal loan best suited for you.
Not comparing the options
Personal loans available in the market may be different in terms of interest rates, charges, fees, service quality, etc. Thus, not comparing products from different lenders can be dangerous. You can easily compare options in the online marketplace according to your suitability and needs. Effective interest rate, processing fee, pre-payment charges, eligibility requirements, digital loan processing facility, etc. may be a few terms of comparison.
It is wise to compare your credit options before submitting your loan application form. Don get carried away by loan offers that promise you the lowest rate of interest. It is recommended that you carefully also consider all the other factors and make an informed decision.
Not checking your credit score before applying for a personal loan
Checking your credit score is very important because lenders first check your score to check your creditworthiness. If you do not have a good credit score, there is a chance of rejection or high-interest rates. You can improve credit score and get a personal loan at a good price.
Your credit rating is one of the most important ways to check your creditworthiness with creditors. If your score is more than 750, you may be offered the lowest available interest rates on personal loans among other benefits. However, if it is less than 750, your effective interest rate may be much higher which translate to higher EMI and even rejection in some cases.
Therefore, you should check CIBIL score before applying for a personal loan so that you can enjoy the interest rates. If it is not up to the mark, you should first take corrective measures such as clearing out any outstanding credit card balances to improve your score.
Not reading the loan fine print
Different lenders have different terms and conditions for personal loans. For example, the lender may charge a prepayment fee to close the loan sooner while others may not charge any fees. Reading the terms of the loan agreement before registration can help you to get a full account of all the terms and conditions.
Lenders may assure you many offers and benefits at the time of application. Read the fine print and be informed about all charges. If the terms do not match your ability to pay, you should go in for another lender with terms suiting your abilities and requirements.
Failure to consider your budget
While applying for a loan may seem like an easy way to manage finances, you should also consider the accumulation of debt and outstanding payments. It is never advised to go deeper into debt as it affects your personal, social, mental, and financial health. Always manage your financial opportunities with commitment and exercise due diligence. Make sure you do not borrow more than your repayment ability. Strictly speaking, the amount of the loan should not be more than 15-25% of your monthly income.
Interest rates on personal loans can vary from lender to lender and are in a wide range. Therefore, it is very important to check the feasibility of EMI repayment for your personal loan according to the interest rate that applies to you, especially if you have other loan payments that you need to take care of. Ideally, all your monthly payments should not exceed 40% of your monthly income.
Different lenders have different eligibility criteria such as salary, age, job, good credit score, etc. Applying for a loan after assessing your eligibility can help you improve your eligibility and get a better loan.
Not making timely payments
It is important to repay the loan on time for many reasons. Every time you miss out on an EMI, it reflects poorly on your credit score. This can easily affect your chances of getting a future loan. It is recommended that you ensure complete financial management and manage your credit needs properly. Make sure you repay your loan on time by setting a reminder on your phone or by making sure you pay automatically so you don have to worry about payment dates.
A personal loan is the best solution for any financial requirement.
How to Apply for Personal Loan Online
To apply for a Personal Loan online, simply follow these steps
Research and Compare: Research and compare the interest rates, terms, fees, and customer reviews of different lenders. Make sure you choose a lender that meets your specific requirements.
Check Eligibility: Check the eligibility criteria to ensure that you meet the loan criteria before proceeding.
Gather Necessary Documents: Prepare the required documents that will be submitted when applying for the loan.
Submit the Application: Fill out the online form and upload the required documents.
Wait for Approval: After submitting the application form, wait for the application to get verified and approved by the lender.
Loan Disbursement: Post successful verification, the lender will disburse the loan amount to your bank account.
Conclusion
When applying for a Personal Loan, avoiding certain mistakes can save you from potential financial pitfalls. Always avoid errors like not reading the loan terms carefully, neglecting to check your credit score, and not making timely payments. These mistakes can result in higher interest rates, unfavorable terms, and financial stress.
Hence, take the time to research, assess your creditworthiness, understand the loan agreement, budget responsibly, and make payments on time. Doing so can help ensure a smooth borrowing experience and help you manage your finances better.
