Personal Loan Mistakes to Avoid
Before pinpointing the top 10 personal loans mistakes to avoid. I just want to ask one question and that is “why we take a loan”? The most common answer to this question is we borrow money to fulfill the emergency needs or to consolidate other debts. So, as you need a loan for whatsoever reason. It is a pretty cool idea, but taking a loan has never been so easy. However, you need to be cautious while taking a loan to avoid personal loan mistakes. Keep in mind, lack of awareness can lead to big financial crises. Below we have comprehended some common mistakes that are committed while taking a loan so that you can manage debt comfortably.
Top 10 Mistakes to Avoid While Taking Personal Loans
Not Considering your Repayment Capacity
Before applying for a personal loan, ensure you have the ability to pay off. Keep in mind the interest rates of personal loans are relatively higher than other loans. Many borrowers made personal loan mistakes like before checking interest rates they apply for a loan.
Not Checking Your Credit Score
A credit score plays an important loan because the lenders always assess your credit score before lending money. Most importantly, the interest rates are directly depending on your current credit score. If your credit score is high then you will get a personal loan very easy at a favorable rate. In case, if your credit score is poor it can be personal loan mistakes because the lender will apply hard inquiry check.
Approaching too many Lenders
This is one of the greatest personal loan mistakes often made by the borrowers. Approaching many lenders for a loan is not a bad thing, but with each query, your credit score reduces. And the reduces the chance of getting a loan at a favorable payback time and interest.
Not Disclosing Existing Loan Details
Details of existing loans and other financial conditions are not be shared with the lender. Because a loan sanction amount directly depends on your commitment and financial stability. The reason when I have included this point in the list of personal loan mistakes because many borrowers share their personal financial details with the lender and fall into a big trap.
Not Reading Read Terms and Conditions Properly
Before borrowing a personal loan from the lender, it is very crucial to read all terms and conditions carefully. Keep in mind, lender terms and conditions don’t make for fine reading. So, read each and every paragraph to avoid unpleasant surprises. If you take a loan without going into the fine print, it can become one of the biggest personal loan mistakes for you.
Opting for Long Tenure Period
The reason why many lenders often suggest borrowers opt a loan for a long tenure period because of lower EMI. But, understand, the longer the period the high amount you have to pay off. So, rather go for a long tenure period just because of low EMI, it is advisable that you choose the shortest tenure period. In some cases, a longer tenure period is suitable like if you’re younger with low income so you may not able to afford the shortest tenure period.
Take Insurance for Big Loan
If you take a large loan like a home loan or car loan. It is better to take insurance cover as well. Nowadays term insurance is one of the easiest and affordable insurances. Technically, if you are unable to repay the amount to the bank on time, they will take your home or car. To avoid these consequences you can take a cover of insurance. Not taking insurance with a huge loan is also come in the personal loan mistakes. However, if you are able to repay on time than it is not necessary.
Comparing Lenders besides of a Loan’s Cost
Especially, in India, people first judge the behavior of another person than his quality of work. So, always pay attention to the cost, customer services, and terms and conditions. Make sure always choose a reliable lender, and avoid scammers or predatory lenders. The easiest way to check a lender’s market value, review his websites and read testimonials. Avoid personal loan mistakes by reviewing the website carefully.
Always Submit Authentic Details
Lying on the personal loan application is the biggest personal loan mistakes. And this approach can lead you at the jail or show you as a fraud. Right from the name to income, everything must be related to your profile. Always stick to truth throughout the loan sanction process.
Higher EMI then your Affordability
The quality of a smart borrower is he will never bite off more than he can chew. As per my knowledge, your EMI should exceed more than 15% of your income. It is one of the common personal loan mistakes. Experts say that the loan to income ratio must be acceptable. And you make EMI option acceptable by choosing flexible tenure period.