5 Costly Mistakes to Avoid Before Applying for a Personal Loan
Personal loan applications are straightforward but that does not prevent borrowers from making mistakes that can result in overhead costs. This article discusses 5 such mistakes and tips on how to avoid them.
Instant personal loans are a good source to finance expenses and can come in handy, especially due to the minimal documentation process and faster sanction periods. Since these loans are significantly easier to avail than any other kind of loan, it comes in handy in times of emergency.
Many financial institutions offer personal loans, however, not all of them are at competitive interest rates and flexible tenures. Instant personal loans are a solution to that and can be borrowed by you with much more ease. With that being said, despite its simplistic nature, you must avoid some things during your application. If these mistakes are made, you might have to pay a costly price for them.
5 Costly Mistakes to Avoid Before Applying for a Personal Loan:
- Borrowing Beyond Means
Borrowing a loan beyond your means, essentially meaning your repayment capacity, is a major mistake and can threaten your financial health in the future. A basic rule of thumb to avoid such a circumstance is to ensure that the EMI of your personal loan does not exceed 10 percent of your monthly net income. This ensures that you are borrowing within your means and you will be able to return the corpus of the loan well within the stipulated tenure of the loan.
- Lack of Research
There are a plethora of lenders in the market today and committing to one lender without much research on others can be a cause of regret later. While it is understandable that looking into multiple vendors is overwhelming, however, these efforts will reap benefits in the form of lower interest rates and better terms of the loan for you. To streamline the process and make a criterion for what kinds of offers you are looking for, use a personal loan EMI calculator. By doing this, you will get a fair idea of what you can and can not afford. Hence, boiling down the process of finding a lender to a large extent. Taking these proactive measures ensures that you can be debt-free as soon as possible.
- Too Many Loan Applications
In times of desperate need for funds and emergencies, people tend to panic and apply for multiple loans in one go-to resort to whichever lender reverts first. Although this seems like a good idea in principle, it is a misstep that can adversely affect your credit score. When reviewing personal loan applications, lenders make a hard inquiry in the course of processing. This shows up on your credit report, and due to too many hard inquiries, your credit score may take the hit and see a decrease.
- Neglecting the Fine Print
Not reading the fine print when considering taking a personal loan is a very common mistake. This leads to borrowers overlooking hidden expenses such as prepayment penalties. Meaning, in case you have the means to pay off your loan early and be debt-free, the lender will impose a fee on you for depriving them of extra years of interest rates that they would receive as profit. Most times, the payment of this fee ends up being more expensive for the borrowers and they have to stick to a prolonged period of having the loan.
- No Tenure and EMI Balance
Many borrowers do not establish a tenure and EMI payment balance. This means that, although you can lower your monthly EMI by availing of a loan with a longer tenure, you must make sure that you are able to pay it back for that long. A similar case can be seen with people who overestimate their repayment capacity and take a shorter tenure loan and high EMIs but find it difficult to abide by it.
Although personal loans are a quick fix for financial woes and the need for funding, borrowers must understand that there are some pitfalls along the way that they need to avoid at all costs. Follow the above-mentioned points to the T and be rest assured that you have laid a solid foundation for your financial health in the coming years. Fullerton India’s personal loans not only offer competitive interest rates, flexible loan amounts, and tenure. But they also offer full transparency, which as seen above, is an integral part of a seamless loan-taking process. Apply Now!