Whenever a financial emergency shoots up, one of the most popular options for many is to go for a personal loan to get funds. Although demands are continuously going up for this type of unsecured loan, however, it does not come as cheap like other loans.
Also, the rate of interest for this type of loan is usually higher, and a real hard work is required to get the better terms.
Further, learning from the mistakes made by others, one can help himself/ herself in quickly moving up in the life.
So, do you want to become a smart personal loan applicant? If yes, then we have put together some of the most common mistakes that are committed while applying for personal loan. By having a comprehensive knowledge about all of them, one can easily get the best personal loan for himself/ herself.
Mistakes to Avoid While Applying for Personal Loan
The top mistakes that one must avoid while applying for personal loan are as follows:
Not Checking the Credit Score
Checking of credit score plays a very significant role because the lenders firstly check the credit score of the prospective client to evaluate his/ her creditworthiness. So, if in case a person does not have a good credit score, then, in that case, there are high chances of high interest rates and rejection.
Therefore, to avail of a personal loan at a good rate, one needs to first improve his/ her credit score.
Applying for Too Many Personal Loans at a Time
This is a mis-step when one wants funds for his/ her immediate and urgent needs. That means in a desperate need for money, one might tend to apply for various personal loan that, too, from too many lenders.
So, whenever a lender processes your loan application, a hard and stringent enquiry is conducted which will reflect on the credit report. If in case, too many of such hard enquiries are made, then, it could hurt or weak the credit score of that person. Moreover, the lenders will assume that the said person is credit hungry and will hesitate to grant him/ her the credit.
Settling for Less
Nowadays, many people tend to choose a personal loan based on the referral or instant approval. However, it is not a bad idea to contemplate, one might lose out the best offers and proposals when he/ she fail to shop around.
Further, in the case of instant approval personal loans, there are chances that at one place it might have higher interest rate, whereas, at other place, from some another lender, one would have got it for cheaper prices.
Although, it may take comparatively more time, but it could lower the debt burden considerably.
Not Carefully Reading the Terms and Conditions
There are chances that lenders might promise the borrower a speedy approval of application and high loan amount during, however, it is suggested to never fall prey to such promises.
One must carefully go through the written terms and conditions and should be well informed about the charges to be levied upfront.
If in case the terms and conditions are not favourable to borrower’s repayment capacity, then, make the right choice by choosing the best loan.
Choosing the Long Tenure
In order to pay off smaller EMIs, there are chances that one might want to choose for a longer tenure. However, this method would only increase the burden of debt.
With a longer tenure, one will end up paying off more amount on interest rate. Therefore, smaller loan periods assist the borrower in saving more amount on interest outgo and overall debt burden as well.
Taking a Purpose less Loan
It is always advisable that a person should take personal loan only when he/ she has a real financial need. That means taking a loan just for some recreational purposes, such as throwing party to the friends, or going on a vacation etc., will result into a burden later.
Not Meeting the Eligibility Criteria
Different lenders have their different eligibility criteria, such as minimum income, good credit score, age, employment, residential location, etc. Therefore, while applying for personal loan, one must check whether he/ she meets the prescribed eligibility criteria or not. As one who satisfies the eligibility criteria could get better loans than others.
Not Comparing before Applying
One of the biggest mistakes that people make while applying for personal loan is that they tend to go to the bank or financial institution with which they have the longest relationship and have done the most business, that, too, without shopping around for the best offer and deal.
Further, there are things, such as interest rate, pre-payment charges, processing fees, loan tenure, and the loan amount, which may vary from one lender to another lender. Therefore, it is crucial to research and make a well informed decision to settle the best deal.
Also, once a borrower has carried out a detailed research, then, he/ she will be able to properly evaluate the pros and cons of the loan deals offered by several lenders and find out what suits him/ her the best.
Concealing Details of Previous Existing Loan
It is domineering that one must duly inform his/ her lender about the existing financial transactions and liabilities, if in case they exist.
That means a borrower needs to be honest about his/ her financial status because concealing and hiding such information or details from the lending companies and financial institutions will only make it problematic for him/ her to avail of a loan.
Further, if in case, Lenders find out the concealed information and details about your credit history, then, in that case, hiding information or forging required documents will lead to the rejection of loan application.
In a nutshell, the loan application may often be an intimidating, back breaking, and even stressful process, however, do not let it be!
Further, a personal loan can offer financial relief if the same is done with responsibly and by understanding everything that is involved in the process, so one can avoid common mistakes.
Lastly, the key takeaway while applying for personal loan here is to give yourself ample of time to make the right decision, plan carefully, and weigh the available loan options with a clear mindset, so that, a borrower will be able to set himself/ herself up for financial success.