Top 7 Mistakes to Avoid While Taking a Personal Loan
When a financial emergency shoots up, a personal loan is the most popular option for many to get funds. With demands going up for this unsecured loan, it does not come cheap unlike other loans. The rate of interest is usually higher, and a real hard work is required to get the better terms.
Learning from the mistakes of others can help you move up quickly in your life. Do you want to be a smart personal loan applicant? We have put together some of the common mistakes that are committed while applying for a personal loan. By knowing all of them, you can get the best personal loan.
#1. Not checking your credit score
Checking credit score is very important because the lenders initially check your score to evaluate your creditworthiness. If you do not have a good credit score, there are chances of rejection or high interest rates. You can improve your credit score and avail personal loans at good rate.
#2. Applying for too many personal loans
This is a misstep when you want funds for your immediate needs. In a desperate situation for money, you might tend to apply for a personal loan from too may lenders. When the lender processes your application, a hard enquiry is made which will reflect on your credit report. If too many hard enquiries are made, it could hurt your credit score. Moreover, the lenders would assume you are credit hungry and hesitate to grant you the credit.
#3. Settling for less
Many tend to take a personal loan based on referral or instant approval. Though it is not a bad idea to consider, you might lose out the best offers when you fail to shop around. Instant approval personal loans might have higher interest rate where you would have got it at cheaper prices from another lender. Though it may take more time, it could lower your debt burden considerably.
#4. Not reading the fine print
The lenders might assure you a speedy approval and high loan amount during your application. Don’t fall prey to such promises. Go through the terms and conditions carefully and be informed about the charges levied upfront. If the terms are not favourable to your repayment capacity, make the right choice in choosing the best loan.
#5. Opting for longer tenure
In order to pay smaller EMIs, you might want to opt for longer tenure. But this could only increase the debt burden. With longer tenure, you will end up paying more on interest rate. Smaller loan periods help you save more on interest outgo and overall debt burden.
#6. Taking a loan without any purpose
A personal loan is advisable to take when you have real financial need. Taking it for recreational purposes like throwing party to your friends, going on a vacation etc. will become a burden later.
#7. Not checking eligibility criteria
Different lenders have different eligibility criteria such as income, age, employment, good credit score, residential location etc. Applying for the loan after checking your eligibility criteria could help you improve your eligibility and get better loans.