A Personal Loan, in simple words, is an unsecured loan which can be easily availed to meet the financial needs of individuals. Unlike a home loan or a car loan, a Personal Loan is collateral free. This simply means that you don’t need to offer any form of physical assets, in order to secure this loan. 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.
Personal loans can be a great way to get access to funds when you need them. They can be used for any purpose and are easy to apply for. However, when applying for a personal loan, there are some common mistakes that people make that can end up costing them more money in the long run. In this article, we will discuss the mistakes to avoid when applying for a personal loan.
Moreover, Personal Loans can also be used for any legitimate purpose that you deem fit. You can employ them to make a down payment, renovate a house, plan a vacation or purchase an electronic gadget. The usability of the total loan amount is left entirely at your discretion. This is why it comes as no surprise that Personal Loan is a growing segment in retail loan sector, throughout the country!
Avoid These things When Applying for a Personal Loan
However, when you decide to apply for this pocket-friendly, low-interest loan, make sure that you do not commit the following mistakes:
- Sign Without Reading ‘Terms and Conditions’Signing the loan documents without reading through their fine print, 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. For instance, most Personal Loan carries hefty prepayment charges which can increase the total loan cost in cases wherein you would like to close early. If you haven’t read through the T&C details, you will end up paying extra money for a loan that you thought was affordable!Your credit score is one of the most important factors that lenders use to determine your eligibility for a personal loan. If your credit score is low, you may not be approved for a loan or you may be approved but with a higher interest rate. Before you apply for a personal loan, it is important to check your credit score to make sure it is in good standing. If it is not, you may want to work on improving your credit before applying for a loan.
Before you sign on the dotted line, it is important to read the fine print of your loan agreement. This will include details such as the interest rate, fees, and repayment terms. If you don’t read the fine print, you may be surprised by hidden fees or other terms that you didn’t expect.
- Not Considering your repayment capacityEach 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? How do you make the repayments without venturing on the brink of a default?This is precisely where the EMI Free Loan come to your rescue. Their flexible repayment schedules allow principal and interest costs to be calculated separately. As a result, you are only required to pay the interest amount every month while the principal amount can be paid in every 6 months! This doesn’t just reduce your monthly payout by 40%, but it also gives you the power to manage your monthly cash outflows with every bullet payment you make.When you take out a personal loan, you will be required to make monthly payments to repay the loan. If you don’t have a plan for repayment, you may struggle to make these payments on time. Before you apply for a personal loan, it is important to have a plan for how you will repay the loan. This may involve cutting back on expenses or finding ways to increase your income.
- Submit multiple loan applicationsThe 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. With a higher number of loan applications in your name, a greater amount of background checks turns up. This only goes on to show that your need for availing a loan is arising out of sheer desperation. Consequently, the chances of your application being approved get severely limited.When you apply for a personal loan, the lender will check your credit score and this will show up on your credit report. If you apply for multiple loans at once, it can negatively impact your credit score. Each time a lender checks your credit, it can bring down your score a little bit. Additionally, if you are approved for multiple loans, you may end up with more debt than you can handle.
- Avail more loan than requiredIn 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 expense. While this can be a feasible option for some, for others, it can prove to be an expensive affair.
- Remain unclear about purposeWhen you apply for a Personal Loan – make sure that you are absolutely clear about the purpose for which you need it. Do you want to renovate your house or are you looking to purchase a new car? Is the Personal Loan needed to meet a wedding expense or are you availing it for making a rental deposit? A clear objective would help you prepare a proper budget while utilizing the loan in a hassle-free way. In this way, you will minimize the chance of applying for a lower amount and falling short of funds nor will you end up with excess funds and higher instalments, by applying for a higher amount.
Loan enables you to identify your specific purpose by drawing a line between your essential and non-essential requirements. Its loan products are tailor made to suit different situations which might arise from time to time. This doesn’t just equip you to fulfill your life-stage based goals but it also prepares you to make a productive, need-based and informed loan choice. You may choose between house owner loan to rental deposit loan to wedding/ holiday loan or even premium bike loan.
Loan also offers built-in eligibility checks to ensure that your loan application is processed without running multiple CIBIL checks and loan approval is determined on the basis of your meeting the eligibility criteria. The terms and conditions of granting a loan are clearly displayed on the Loan website where each clause is explained accurately and with complete transparency. Before applying for loan at Loan, check your eligibility and related terms and conditions upfront.
Other benefit of choosing Personal Loan from Loan is customer friendly terms and conditions. We understand if you have additional cash inflow, you would like to prepay your loan. So, at Loan, after the first 6 months of servicing the loan, prepay your Personal Loan at no extra cost.
Replace Credit Card Minimum Payment with EMI Free Loan
Also, the impediments of availing higher than expected loan amounts can be resolved by availing a Personal Overdraft Loan. This is a kind of specialized Personal Loan, wherein a certain line of credit is sanctioned to you for a predefined tenure. You can withdraw any amount of money within this credit line and pay interest only on the amount that you have used. The remaining amount remains non-chargeable through the loan tenure, thereby, giving you the benefit of availing a loan that fits your pocket!
In an era of financial complexities, the cost of leading a comfortable lifestyle is rising each day. The expenses incurred in procuring basic amenities and meeting unexpected emergencies have increased disproportionately to income increase. As a result, the financial management of many people is going completely haywire. They are increasingly being forced to break into their savings and withdraw their investments, merely to fulfill their immediate requirements. This has led to the creation of a situation where any extraneous expenditure harbors the capability of quickly turning into a potential debt trap!
Conclusion: When applying for a personal loan, it is important to avoid these common mistakes in order to save money and avoid financial problems down the road. By checking your credit score, shopping around for the best interest rate, reading the fine print, and having a plan for repayment, you can make sure that you are getting the best loan for your needs and that you are able to repay it on time.
