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Personal loan - Mistakes to avoid while availing a loan

· Personal Loan Advice

A Personal Loan, in layman's terms, is a collateral free loan which can be easily accessible to meet the financial shortcomings of individuals. Unlike a home loan or a car loan, a Personal Loan is unsecured in nature. Which in simple terms means that you need not pledge any physical asset against the borrowed sum. All you are required to do is- provide the details of your income level, employment history, and few basic documents. Based on these, the lender determines whether your application for a Personal Loan can be approved or rejected.

However, when you decide to apply for this pocket-friendly, low-interest loan, make sure that you do not commit the following mistakes:

Not Reading ‘Terms and Conditions’

Signing the loan documents without reading through the agreement and terms of service, is one of the major mistakes that you can commit. The terms and conditions prescribed in these legally binding documents have a tendency of springing up surprises, especially when you least expect them. The terms and conditions will precisely spell out the various closure charges or penalty for late payments or default and also loan insurance amount etc. Thus, you must read the document very carefully to avoid sudden surprises.

Not Considering your repayment capacity

Each Personal Loan comes with a fixed amount of monthly EMI, which is essentially a sum of both, the principal and the interest. Although financial institutions generally ensure that no loan with an EMI exceeding 40%-50% of your net income is sanctioned, what happens when your budget is stretched thin? Thus, it is of utmost importance that you budget out your monthly expenses and also keep aside some sum as a saving. Post which you need to ensure that your EMI is affordable and can be repaid off with ease. This will lower the burden when sudden expenses also arise.

Submit multiple loan applications

The more loan applications you submit, the lesser are your chances of actually getting a Personal Loan. This is simply because every time you apply for a loan, the lender checks your credit record. Each lender will make a hard enquiry against your loan request. Each hard enquiry impacts your credit score. It also denotes the dire need and desperation of funds. Thus, the chances of your application being approved get severely impacted.

Avail more loan than required

In the age of digital lenders, when loans are convenient to avail, many a times, applicants end up availing more loan than they really need. Either because loans get sanctioned faster or by virtue of lifestyle expenses. While this can be a feasible option for some, for others, it can prove to be an expensive affair.

Remain unclear about purpose

When you apply for a Personal Loan – make sure that you are absolutely clear about the purpose for which you need it. Purposes can be many - wedding, holiday, home renovation, car repairs, rental deposits, etc. Classifying the nature of your need will help you choose the right personal loan for your requirement. With the rise of new age lenders personal loans have need customised to meet the precise needs of borrowers. Doing so, you can avail an instant personal loan that fits your pocket and makes the loan more affordable to service.