10 Mistakes to Avoid While Applying for a Personal Loan

10 Mistakes to Avoid While Applying for a Personal Loan

Feb 3, 2024 | Personal Finance, Personal Loan | 0 comments

A personal loan helps you to cater to your emergency needs. There are many lenders offering personal loans. However, choosing the most suitable one can be a difficult job, and making mistakes while choosing a personal loan can cost you a lot. 

So here are the 10 mistakes that you should avoid while applying for a personal loan.

The mistake of Not Preparing a Budget

A budget helps you to plan your finances properly. You will get to know how much to really spend. Paying late interest amount will incur a late penalty to you and it will also affect your credit score. Do remember, a bad credit score indicates the difficulty of getting another personal loan in future. 

You can follow the 60/10/30 budget rule, where 60 % goes in for paying the basic needs like food, rent, utilities,  health care costs, etc. 10% goes in for paying your wants like movies, dining out, concerts, latest electronic devices, etc. 30% of your money goes in savings and debt payment and out of this 30%, 10-15% should be reserved for paying EMIs.

A Mistake of Not Checking the Fees

Just don’t go for any random lenders that offer you a personal loan with low-interest rates, because, even if interest rates are low, fees and charges might be high as compared to other lenders. 

There are charges and fees like processing fees, prepayment charges, late payment charges, etc. Every lender might charge you differently, So checking all the fees and charges of all the lenders in a disciplined manner is a must.

Borrowing More Than Actually Needed

Apply for a personal loan only if there is really an emergency. Don’t borrow more than your actual needs. Analyse your budget properly and see to it if it really permits you to borrow. Remember, if you apply for the amount more than your repayment capacity then your loan application will get rejected and this will give bad credit inquiry which will ultimately lead to a decrease in your credit score.

The Mistake of Not Comparing Different Lenders 

Everyone wants to apply for a personal loan that has lower interest rates. But people hesitate to do proper research. 

Many lenders have different interest rates, loan tenure, loan amount, processing fees, prepayment charges, etc. So it is necessary to do proper research as it will help you to find the most suitable lender that offers low interest-bearing personal loan with other low charges. 

You can also consult LoansXpert that will take care of all the hassles for finding a suitable lender for you that offers the affordable personal loan. 

The Mistake of Applying for Unrealistic Tenure

Longer tenure attracts a low cost of interest rate every month on your personal loan. However, as the period is longer so at the end of the tenure you will end up paying more EMIs. 

Whereas the shorter tenure period will help you save well on EMIs outgo and eventually, at the end of the tenure you would have paid less EMI amount as compared to personal loan having longer tenure. 

In short, before applying for the longer-term or shorter-term personal loan, analyze your budget and payment capacity.

Not Checking Eligibility Before Applying

There are eligibility criteria that are needed to be qualified before getting a personal loan. These eligibility criteria are based on your age, income, employment, location, credit score, etc. So, do check the eligibility criteria before applying for the loan.

Not Familiarizing Yourself with the Bank’s Rules

You must know all the rules and regulations of the bank before applying for the personal loan. Knowing rules in advance will help you to make a proper decision of whether to really select that lender or choose a different one. Also, this will avoid any hazard in future.

The Mistake of Hiding Existing Loans

Be frank with the bank, don’t hide any information. Hiding existing loans will only attract difficulties. 

Also, if you are already having a loan still you are applying for more loan amount then you will get a cash crunch in paying the loan amount. This will ultimately attract a lot of debt burden on your shoulders.

And more than that, even if you are hiding existing loans, banks will find about it by referring to your credit history and this will lead to immediate rejection of your application which will ultimately affect your credit score.

Signing Personal Loan Agreement Without Reading It Carefully

Do read the loan agreement carefully before signing it. Read all the terms and conditions thoroughly because there might be some hidden charges you might not know. 

Many times, charges like prepayment penalties are applicable if you pay the loan amount prior to the tenure. So it is better to get aware of this. If you are feeling that some clauses in the agreement are not acceptable then don’t sign the agreement and find some another lender.

A Mistake of Not Verifying Your Credit Score

A credit score is used to identify your creditworthiness. A good credit history tells whether you have the capacity to repay the loan amount or not. Higher the credit score, better is the probability of getting a personal loan with a low-interest rate. A rejected application can affect your credit score badly. Your credit score should be more than 700. The more the credit score, the more chances are there of getting a loan at affordable interest rates.

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