Is there a financial emergency at your house? Look no further! A personal loan is an appropriate choice for you to get funds without any hassle. The only trick is to understand your financial needs and choose smartly without hampering your budget. We all make mistakes but making a financial one always ends up in costing a lot more money. The wise advice is to learn from the common mistakes that people make while applying for a personal loan and stay stress- free.
1. Lack of clarity regarding the purpose of loan: The most common mistake is that people often fail to draw a line between essential and lifestyle-based personal loan requirements. Interest rates and other charges on personal loans are very high and one should avoid personal loans to the greatest extent possible especially for meeting non-essential needs.
2. Borrowing a Loan Beyond One’s Repayment Capacity: You should carefully evaluate your ability to pay the EMIs regularly before taking a personal loan. As a thumb rule, the EMI component of a personal loan should not be more than 10%-15% of monthly net income i.e. an amount that you can pay every month without stretching your budget.
3. Signing Blank Documents: This rule is applied to all the processes you initiate in life. When you apply for a loan, you meet your lender and gradually begin to trust him completely. However, you strictly have to say no if he asks you to sign a blank application form or documents as you may land in a scam. It is very important to have complete knowledge of the loan process and stay involved in every step.
4. Selecting longer tenure with low EMIs: While longer tenure with lower EMIs seems like an easier repayment option, one should adopt for an aggressive approach as shorter term loans are more cost effective due to the lower absolute payout requirements. However, make sure you take your monthly budget and repayment capacity into consideration when deciding your loan tenure.
5. Failing to Disclose Details of existing Loans: Ideally, one should disclose and share details of all existing loans that are being serviced when applying for a new loan. One may get sanctioned a higher loan amount by hiding such details but ultimately this will only end up stretching your monthly budget when you start paying off the loan.
6. Ignoring your credit history: All the lenders go through and investigate your credit history to know how you have managed your finances till now. If your track record comes out to be good, you are sure to have a good financial credit score. A good credit score vouches for an impressive credit history as the lenders get convinced that you manage your financial responsibility properly and plays a very important role in the loan- approval process with a lower rate of interest.
7. Applying for multiple loans at the same time: Your credit record is checked by lenders before approving the loan and your credit record always reflects the date when the lenders have checked your financial background. With many background checks, you will look desperate for a loan and the lender might get this impression that your expenditure is excessive, which decreases your chance of getting a loan.
8. Not approaching a lender you have a previous relationship with: Approaching the bank with which you have a previous relationship with such as a salary account or other long term banking relations like fixed deposits and previous/current loan with would also work in your favour as your loan might get approved faster with lower rate of interest.
9. Not discussing and informing spouse/family about personal loan: Before taking a loan, you should discuss this with your family as the EMI payouts will impact your monthly budget. Ideally one should also review the reason for taking the personal loan with family members. Your spouse or another family can suggest other options (such as personal savings/gold loan etc.) to meet immediate cash requirements rather than applying for a personal loan.
10. Signing without reading and understanding the loan terms and conditions: One should read the fine print and understand the various terms and conditions of a personal loan before signing any legally binding document including a personal loan agreement. Most of the times, part payments or pre-mature closure of loans are not offered unless you pay a penalty i.e. pre-payment. Ensure that you clarify all your doubts before taking the final decision.
It is always advisable to be prepared and if you keep the above pointers in mind, you are sure to save yourself from unnecessary stress or hassle.