7 Major Personal Loan Mistakes to Avoid

7 Major Personal Loan Mistakes to Avoid

Personal loan is the most convenient and instant credit product to meet your urgent financial needs. As it is an unsecured loan, you are not required to submit any collateral/security with the lending bank or NBFC. A personal loan comes with no end-use restriction which means this loan can be utilized to meet any personal requirements.

Knowingly or unknowingly, people still tend to make certain mistakes while applying for a loan. Therefore, if you are thinking about what mistakes should be avoided, then here you will find the answers to all your questions. Read on to know the mistakes people make while applying for a personal loan and how to avoid them.

Some of the common mistakes that you cannot neglect are discussed below:

Not Checking Your Credit Score Periodically
This is the most critical mistake that people make which is not checking their credit score or credit report. Your credit score indicates your creditworthiness and repayment capacity that lenders consider before personal loan approval.

A good credit score usually helps in availing personal loans at lower interest rates and added benefits. Therefore, you can check your free credit score from the Paisabazaar website or mobile app, which is India's one of the leading online platforms offering credit score for free with monthly updates.

Avoiding Checking the Eligibility Criteria
Every lending institution has pre-defined eligibility criteria for each loan product for applicants to clear before applying for a loan. Your credit score is also a major component in your eligibility criteria, so maintain it at least 750 out of 900 to avail personal loan at ease and relatively lower interest rates.

To check your eligibility in advance, you can take help from the respective bank’s eligibility calculator and know whether you are eligible to apply for a personal loan or not.

Not Comparing Potential Lenders
You need to shop around for the best interest rates or favourable products before filling a personal loan application form. Check and compare various lenders for the lowest interest rates, processing fees, foreclosure charges, etc. If you maintain a good credit score and stable income then you have an option to negotiate from various financial institutions.

Not Choosing the Right Tenor
The basics of choosing a repayment tenor is that opting for a shorter repayment tenure will offer higher loan EMIs and a longer repayment tenure ease down the EMI cost. It is preferred not to choose shorter repayment tenure, as it makes your EMIs higher and sometimes unaffordable. Always choose a manageable repayment tenor that can be paid without much burden.

Avoiding to Read the Terms and Conditions
It is always a good practice to read and understand all the terms and conditions before signing any loan document. Many applicants neglect or overlook various loan-related details, such as processing fees, loan cancellation charges, foreclosure charges, prepayment charges, and various other hidden charges. This eventually leads to the increased cost of credit after loan approval or cancellation.

Not Disclosing the Existing Credit Details
If you have any existing loan, credit card or any credit product under your name then you should disclose all the related information at the time of loan application submission. Any unpaid loan or undisclosed loan details may result in a low credit score and may lead to your loan application rejection. Do not hide any credit related information with the lending institution before applying for a personal loan or any other credit facility.

Borrowing more than what is Required
It may be possible that you are eligible to avail higher loan amounts that does not mean you should borrow more than your actual requirement. This act may lead to unnecessary debt and overspending that may be regretted later. Therefore, to overcome this practice you are advised to prepare a budget by effective financial planning and further apply for a personal loan.

Key Takeaways:
Before applying for a personal loan, you should avoid any of these mistakes and keep all your documents handy so there is no faulty or incorrect information with the lender. Personal loan is the easiest way of availing credit, as it is unsecured and no collateral is required to be submitted; still you should be cautious enough to follow all the necessary steps before signing any loan document.

Maintain a good credit score and remain credit healthy, if you want a hassle-free loan at low interest rates.

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