Personal loan is often refered to as an all-purpose loan as you can use the money as you please. It’s a good way to generate short-term liquidity. However, at times, commonplace errors lead to loan rejection. Avoid making the following mistakes to quicken your loan approval process:
Not Clarifying the Details For Taking the Loan
One of the most common loan application mistakes is not explaining the loan’s purpose. Mostly it is because borrowers themselves are not fully aware of how the money will be consumed. Which is why it is important that you plan your loan amount. When you approach a lender for loan, explain fully why you need the loan and how you are going to utilize it. Your clarity of thought will enthuse confidence in the lender.
Applying Without Comparing
One of the most common mistakes people make when applying for a personal loan is to just go to the bank with which they have most often done business. It is important to do research and make an informed decision. Once you see what other banks are offering, you will be able to assess the pros and cons of each and find what suits you best.
Being Unsure About Loan Amount
It is important that you are sure about how much loan you require. When you go to a lender, do not give them a range, say Rs. 3-5 lakhs or close to Rs. 6 lacs. Be exact about the amount. Quoting a range or vague figures to the lender will show that you have not clearly thought through your requirements. It will also mean that as you are not sure of how much you want, you don’t know how you will pay it back either!
Underestimating the Importance of Credit History
Lenders check out your credit history to see how you have managed your finances. If you have maintained a good track record with respect to your financial responsibilities, you are likely to have a good credit score. A good CIBIL score indicates a solid credit history, plays a key role in the loan approval process and determines your interest rates. If the lenders are convinced you manage your finances diligently, they will be eager to have you as their customer.
Hiding Details of an Existing Loan
It is imperative that you be honest about your existing financial condition and liabilities. Do inform your lender if you are repaying any other loan as well. Concealing such information from lenders will only make it difficult for you to get a loan as lenders will, in any case, find this information from your credit history. Falsifying documents will lead to immediate rejection of loan application.
Signing Blank Documents or Forms
Once we start the loan borrowing process and have met the lender’s representative, we become callous. For instance, having an executive come to our house or office to collect the required documentation or getting the papers signed. It so happens that due to this comfort, we some times sign blank documents or application forms under the impression the executive will fill the details. Avoid making this mistake! Filling the forms yourself will serve two purposes. One, you will get to familiarize yourself with what is required from you , and second you will save yourself from a potential scam. It is important that you are involved in every step of the loan process.
Not Reading the Fine Print
When applying for loan most people do not read the fine print thinking it will contain incomprehensible jargon. They do not make efforts to understand the terms and conditions and other related paperwork. Please understand this is an integral part of the process. Skipping this step may land you in a soup later. Also, do not hesitate ask your lender to explain confusing concepts. It is better to clear all doubts initially than repent later. Know what you are signing before you sign.
By Naveen Kukreja, Director, PaisaBazaar.com
(First published in MoneyControl on 10 Feb 2015)