A personal loan is easily accessible and can be taken for any purpose. They come with good interest rates and repayment tenure. But are we being prudent while applying for a personal loan? What are the common mistakes we all commit while taking a personal loan?
When a financial emergency comes up, a personal loan is the most popular option for many to get funds. With demands going up for this unsecured loan, it does not come cheap, unlike other loans. The rate of interest is usually higher, and a good credit score is very important to get better terms.
Learning from the mistakes of others can help you move up quickly in your life. Do you want to be a smart personal loan applicant? We have put together some of the common mistakes that are committed while applying for a personal loan. By knowing all of them, you can get the best personal loan.
Mistake 1. Not checking your credit score
Checking your credit score is very important because the lenders initially check your score to evaluate your creditworthiness. If you do not have a good credit score, there are chances of rejection or high interest rates. You can improve your credit score and avail of personal loans at a good rate.
Additional Reading : CIBIL™ Score for Personal Loan
Mistake 2. Applying for too many personal loans
This is a misstep when you want funds for your immediate needs. In a desperate situation for money, you might tend to apply for a personal loan from too many lenders. When the lender processes your application, a hard enquiry is made which will reflect on your credit report. If too many hard enquiries are made, it could hurt your credit score. Moreover, the lenders would assume you are credit hungry and hesitate to grant you the credit.
Mistake 3. Settling for less
Many tend to take a personal loan based on referral or instant approval. Though it is not a bad idea to consider, you might lose out the best offers when you fail to shop around. Instant approval personal loans might have a higher interest rate where you would have got it at cheaper prices from another lender. Though it may take more time, it could lower your debt burden considerably.
Mistake 4. Not reading the fine print
The lenders might assure you of speedy approval and a high loan amount during your application. Don’t fall prey to such promises. Go through the terms and conditions carefully and be informed about the charges levied upfront. If the terms are not favourable to your repayment capacity, make the right choice in choosing the best loan.
Mistake 5. Opting for longer tenure
In order to pay smaller EMIs, you might want to opt for a longer tenure. But this could only increase the debt burden. With longer tenure, you will end up paying more on the interest rate. Smaller loan periods help you save more on interest outgo and overall debt burden.
Mistake 6. Taking a loan without a purpose
A personal loan is advisable to take when you have real financial needs. Taking it for recreational purposes like throwing a party for your friends, going on a vacation etc. will become a burden later.
Mistake 7. Not checking eligibility criteria
Different lenders have different eligibility criteria such as income, age, employment, good credit score, residential location etc. Applying for the loan after checking your eligibility criteria could help you improve your eligibility and get better loans.
A loan is a financial commitment. Be it a personal loan or credit card loan, you have to manage your debt diligently to avoid any future unpleasantness. Prevention is better than cure so it is always better to have knowledge in advance and enjoy the financial benefits.
Additional Reading : Personal Loan Types
FAQs of Personal Loan:
- Where can I find the eligibility criteria for a personal loan?
Lenders usually have a set of eligibility criteria for their personal loan. You can check your personal loan eligibility here on our Creditmantri website. It is available on the Personal Loan Eligibility Check page.
- What is considered a good credit score to get a personal loan?
A credit score of 700 and above can get you a good personal loan with low interest rate and better loan terms.
- Can I get a personal loan if my credit score is 600?
Yes, you could get approved for a personal loan even with a credit score of 600. However, the loan amount, interest rate and other terms might not be favorable to you.
- The loan document is very long, about 40 pages. Should I read the whole thing?
Definitely. It is very important to read the entire loan document and understand what you are getting into. It is a legal agreement and you would not be able to contest any of the terms at a later stage.