9 Mistakes to Avoid Before Applying Personal Loan

You can avail of a personal loan for any reason, whether it is to pay bills, plan a vacation, renovate your home or organize a wedding. The loan is usually convenient and easy to get, and hence it is necessary to avoid some common pitfalls and take some things into consideration when applying for personal loan.Here are nine mistakes that you must avoid when applying for a personal loan:

The first thing that you must give careful thought to is whether you actually need a personal loan . A personal loan, at the end of the day, is yet another debt that you have to pay back, and it can be a burden if you avail of such a loan unnecessarily. Make sure that the need arises first and only then think about availing a loan. You don’t need to get a personal loan just because you’re getting a good deal on a day.

Many of us have a tendency to accept the very first loan offer that we get. In emergencies, when we require funds, it is often common for us to grab at the first opportunity and save the hassles of looking at other options. But comparing loan deals is a must. It’s easy too, as you can do all your comparing online using EMI calculators. Carefully consider your loan tenure, EMI, interest etc., so that you can compare and choose the best offer available to you.

A personal loan is an unsecured loan, and the amount you can borrow is not limited by a fixed percentage of an asset like a home or car loan. This can really make you go overboard and inadvertently borrow more than required and more than you can repay. Keep in mind that a high EMI can put you in a spot if you’re in a financial crunch and you may regret getting a big loan.

Sometimes people can be in a situation where they apply for a personal loan after looking at many deals, and later they find that their loan application was rejected because they don’t meet the eligibility criteria. To save time and rejection later, you must check the eligibility criteria before you apply for a loan. And if you feel you lack in a few areas of eligibility, you can improve them and then apply for the loan.

Even if you trust the loan representative and have a long history with your lender, it is prudent to read the fine print before signing the terms of the loan. It is in the fine print where details like processing charges, prepayment penalty and other hidden charges are mentioned, and if you miss these at the beginning, you’ll be in for a surprise later.

Hiding existing loans on a loan application will almost always result in loan rejection since lenders can find out about your existing loans when they check your credit history. So ensure there is complete transparency in this regard.

We often think that if we keep the loan tenure long, the burden of EMI will be lesser, and that can be favourable to us. But that is not entirely true. A longer tenure will also mean that you pay higher interest. It will also limit your future borrowing capacity, and even if you have spare funds and want to pay off your loan before the tenure, you will face a prepayment penalty. Therefore, when deciding on a tenure, think carefully about the correct duration of the loan and the EMI that you can afford to pay.

Usually, the specific rules for loans are similar across different financial institutions. It is important to understand all rules and eligibility criteria for loans, and if you feel you do not meet the criteria for a certain lender, you must not apply for a loan with them since your loan will likely be rejected, and that could be a waste of time for you.

This is one of the most common pitfalls when it comes to personal loans. A good loan deal can make you borrow more than you actually need, and you may spend the amount for activities that you did not plan originally. This will eventually add up as you will have to repay the loan with interest. A higher loan amount means your interest will be higher, and your tenure will be longer. So ensure that you borrow just the required amount and not more.

In emergency situations, a personal loan can be a source of some quick funds, and you can avail the same if the need arises. But be sure to keep the above points in mind. A couple of mistakes when getting a personal loan can burden you financially, and this may be a cause for undue stress as long as you repay the loan. So carefully read through the above mistakes that you can avoid and only apply for a personal loan after careful consideration.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.