Personal loans are often the well-liked financing facility for cash-strapped individuals not just to fulfill their life goals but also to bail them out during an emergency. No requirement to pledge any collateral, competitive interest rates, repayment tenures up to 5 or seven years, and therefore the possibility of quick loan processing and disbursal are a number of the explanations behind its popularity.
However, it’s important you create informed financial decisions when it involves applying for any sort of loan to avoid any unpleasant surprises afterward. Here are a couple of costly mistakes you ought to avoid while taking a private loan.
1. Not comparing the choices
All personal loans available within the market might not be equivalent in terms of the associated costs and other aspects. As such, not comparing the loan products might be risky. you’ll easily compare the choices in a web marketplace as per your eligibility and requirements. you ought to also not ignore the pre-approved offers extended by your bank and your chosen online marketplace for faster loan disbursals.
2. Not checking your credit score before applying for a private loan
Your credit score is one of the key ways to assess your creditworthiness by the lenders. If your score is above 750-800, you’ll be offered rock bottom available interest rates on personal loans among other benefits. However, if it’s way less than 750, your applicable rate of interest is probably going to be much above rock bottom available rates translating to higher EMIs at the best and rejection of application at the worst. You want to check your credit score before applying for a private loan to be ready to enjoy the simplest loan repayment terms.
3. Not reading the loan fine print
Various lenders have different terms and conditions on personal loans. for instance, a lender may charge a hefty penalty on prepayments to shut your loan sooner whereas others might not levy any charges.
4. Over-borrowing
You might be eligible for an enormous loan ticket size when your actual financing requirement is far smaller. However, you want to borrow only an amount that might meet your requirement and not a penny more. Over-borrowing could exert unnecessary strain on your finances, making it difficult for you to clear your dues fully on time.
5. Not evaluating the affordability of the new loan
Personal loan interest rates may vary from lender to lender (as indicated within the table above) and will range anywhere between 8.9% and 24% p.a. or maybe more. It’s extremely important to gauge the affordability of your consumer loan EMIs consistent with the rate of interest applicable to you, especially if you furthermore may produce other loan repayments to require care of.
If the new loan EMIs would take your total debt obligations above this mark, you ought to check whether you’ll get a lower rate of interest from another lender, lower your loan amount or choose an extended tenure to stay the repayment obligations in check.
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