Personal loans may be sought for myriad reasons like funding a dream vacation, paying off sudden medical expenses, house restructuring, etc. And, getting a personal loan these days is not difficult considering several financial institutions are marketing their loan products at competitive rates. Moreover, the freedom to repay the loan by choosing a loan tenure suiting your requirements makes it even more attractive.
Common Personal Loan Mistakes
You can apply for a personal loan online or go to the nearest branch of the lender to fill a loan application form for the loan amount. However, irrespective of the ease of getting personal loans approved and sanctioned, there are common mistakes that borrowers make while filling in their loan application forms. Some of them are:
- Unsure about the loan amount: Easy availability of personal loans does not mean you can get a loan by filling out any random number as loan amount. You need to be aware of the loan amount you are eligible to get based on the eligibility criteria of the financial institution and the documents you can submit. Filling an amount that is higher than the amount you are eligible to can lead to application rejection of your application or higher personal loan interest rates.
- Not comparing lenders: A lending institution may promise you a pre-approved loan within 15 minutes of the loan application. However, this must not be the sole cause of ignoring the interest rates and benefits offered by other lenders in the market. Comparing interest rates helps as you may gain from cheaper personal loans availed by others. A careful observation of your potential lender’s terms and conditions will ensure considerable savings.
- Not taking care of your credit score: Most personal loans are unsecured, which means that lenders do not ask for security or collateral during loan approval. It explains why lenders are inclined to know your credit score. You must maintain a high credit score for quick loan approval apart from getting the loan approved at low-interest rates.
- Opting for prolonged loan tenure: Longer loan repayment period translates to lower equated monthly installments (EMIs). However, this also implies more money as interest payouts, thus, raising the cost of the loan taken. It is essential to adopt an aggressive approach when it comes to loan repayment to benefit from the lower burden of interest.
- Ignoring excess charges: Many lenders charge extra under the guise of providing better online service or additional levy charges as management fees or processing fees. Check for the supplementary costs involved. Also, a potential high windfall in future means that you would like to prepay your loan. If the lending institution charges extra for foreclosure of the loan amount and if so, how much!
- Signing loan form blindly: Be it for a personal loan or any other purpose, it is essential to read the fine print. Many people sign the loan document without making sure of the loan details. The misconception that your lending institution can do no wrong can spell a substantial financial loss in the long run.
- Hiding Existing Loan Details: If you have taken another loan and are repaying it currently, it is vital to share details about the same. Withholding information about your current loans can adversely impact your credit history, thus, making it difficult for you to apply for loans in future.
- Withholding loan details with family members: Bearing responsibility is one thing and hiding the burden of loan from your loved ones is different. Before applying for a personal loan, you must discuss its details; including EMI payout information the loan interest payment each month may affect your family’s budget.
Apart from the above, rushing for a personal loan without checking the lender’s credentials may be risky. It happens in cases when fraudulent lenders announce nominal rates to entice new customers. It is beneficial to approach a lending institution you have a long-standing relationship and ask them for the prevalent personal loan interest rates to avoid financial hassles in the long run.