Personal Loan

5 Things You Should Avoid While Taking A Personal Loan

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Considering a personal loan? At different stages in life, we all encounter financial needs. Whether it’s for an urgent medical issue, academic pursuits, or expenses related to weddings and home necessities, personal loans can be an excellent solution.

However, did you realize that several blunders could lead to complications when seeking a personal loan? If you aim to secure your loan seamlessly and ensure proper repayment, it’s essential to steer clear of certain frequent pitfalls. This article will highlight the 10 common errors to evade during the personal loan application process.

Adhil Shetty

Personal loans can be incredibly useful when cash is required, making them a top choice among financing alternatives available. A keen borrower with consistent income and a favorable credit rating can secure a personal loan within a few days via an online application process.

However, in their rush to obtain funds, many applicants often neglect crucial factors, which can result in their loan applications being denied or lead to expensive consequences later on. Therefore, if you’re contemplating a personal loan, it’s important to steer clear of several common pitfalls to ensure a seamless loan experience from beginning to end, as explained below.

Applying for a loan when it’s unnecessary


With an abundance of personal loan promotions bombarding our devices and inboxes, some of us err by seeking a loan without adequate consideration, particularly when there’s no pressing requirement. Consequently, we might apply for a loan with interest rates ranging from 10% to 24% per annum, along with assorted fees.

Not repaying the loan promptly can accrue additional interest and late fees, ultimately damaging your credit rating. Hence, always pursue a personal loan solely when it’s genuinely needed and when you’re unable to gather the necessary funds without financial assistance.

Opting for a loan that’s excessively large

A number of us might qualify for a substantial personal loan, but qualifying for a considerable sum doesn’t imply you should accept the full amount.

It simply indicates that accepting a larger loan means greater repayment obligations, which could strain your financial resources during the loan period. Thus, assess how much you genuinely require and apply for precisely that amountno more, no less.

Neglecting to verify your credit score prior to loan application

A credit score exceeding 750 is extremely advantageous when seeking any form of loan. An elevated score not only guarantees that your application is accepted without complications but also enables you to secure more favorable repayment conditions such as preferred interest rates, increased flexibility in tenure and even the possibility of waived processing fees.

 Hence, it is crucial to assess your credit score prior to applying for a loan. If your score is low, endeavor to enhance it by settling all existing obligations like credit card dues or car loan EMIs before submitting your loan application.

Overlooking your ability to repay

Numerous individuals pursue a personal loan during financial crises without thoroughly assessing whether they can manage to repay the loan smoothly. 

They also tend to overlook the attached interest fees, which complicates repayment later on, ultimately leading to an entanglement in debt. Therefore, prior to securing a loan, ascertain the precise EMI amount and determine if you can meet that payment promptly without interfering with other crucial financial obligations.

Failing to review loan terms prior to application

To gather complete details regarding your loan product and to steer clear of any complications during repayment, it is essential to examine the loan terms before applying. 

A personal loan may incur additional fees such as a preclosure fee, lender swap charge, processing fee, cheque bounce penalty, late payment charge, tenure extension fee, etc.

 It is also vital to note that various documents are required for salaried versus nonsalaried or selfemployed applicants. Nosalaried and selfemployed individuals may be required to provide additional documentation, such as proof of business ownership and tax returns, along with the standard KYC documents and bank statements to have their applications approved.

Conclusion

Personal loans can serve as a valuable financial resource in your life, yet it is important to exercise caution during the application process. Steering clear of the aforementioned 10 frequent blunders can enhance your financial standing and facilitate a seamless loan experience.

Prior to securing a loan, collect thorough information, carefully evaluate your financial circumstances, and consider the specific terms involved. This will help ensure that you can manage your loan effectively and prevent any future financial challenges.

Achieving your financial objectives relies on making wise choices, so when you seek a personal loan next time, steer clear of these fundamental errors and advance towards a more prosperous financial future.

Is it safe to take a personal loan?

Personal loans offer numerous advantages for individuals who require fast access to funds and appreciate the stability of a fixed interest rate and payment throughout the duration of the loan. They can serve as an effective strategy for managing excessive credit card debt or for steering clear of borrowing against valuable assets such as your property.

What can you not do with a personal loan?

However, your loan contract might prevent you from spending the funds on specific expenses, such as educational fees or wagering. Additionally, lenders may impose limitations if you attempt to allocate personal loan money as a down payment for a home mortgage. Nonetheless, there are other financing solutions available for these restricted uses.

What is a personal loan risk?

Although personal loans can be advantageous in various circumstances, they also carry steep interest rates and significant impacts on your credit rating. Nonetheless, the advantages of these loans may surpass the downsidesparticularly if you secure a favorable rate and require swift access to funds.

When should I not take a loan?

If you’re currently finding it difficult to meet your existing monthly payments, this is not the ideal moment to incur more debt. Though it may be alluring to use a personal loan to tackle highinterest obligations like credit cards, it still carries the risk that your monthly installments may remain unmanageable.

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