Personal loans are excellent financial instruments for meeting immediate needs. However, many applicants commit mistakes due to a lack of knowledge or urgency of availing funds. And often, fail to make the most of their loan terms.
Below, we discuss five common mistakes to avoid making the most of your personal loan.
Not checking your credit score
Lenders check your credit score to determine your creditworthiness. Thus, reviewing your credit score beforehand can help you understand your personal loan eligibility. Most lenders favour a CIBIL score of 750 or higher to provide funding as it shows a higher repayment capacity.
However, if your CIBIL score is lower, you may face more delays in approval. Thus, you should always check your CIBIL score before applying to avoid unnecessary hassles.
Not checking the fine print
While a lower interest rate and higher loan amount may seem attractive, it is vital to clarify all the terms and conditions before signing the loan documents. You may overlook hidden costs or penalty terms on the fine print. Therefore, you should always read the loan agreement thoroughly and look out for penalty clauses, pre-payment charges, processing fee payment, among others.
Besides the hidden clauses, seeking clarification about your loan with the financial institution will help you get a clear idea about the loan terms. Proceed with the loan application only if you are confident with the details.
Not comparing your options
The policies and processing for loans differ for different financial institutions. Each institution will provide you with different loan terms, including loan amount, interest rate, repayment options, processing fee, documentation requirement, etc., based on your personal loan eligibility. Because of this, you must compare the different loan options available in the market before sealing the deal. Carrying out detailed research will help you secure a loan best suited to your requirement.
Not using an EMI calculator
An EMI calculator provides a detailed estimate of:
- Your EMI amount
- Number of instalments
- Interest payable on your EMIs
While opting for a shorter tenure means a relatively higher EMI amount, the loan’s overall interest will be lower and you can repay the debt quickly.
In any case, using a personal loan EMI calculator can help you understand your EMI burden and choose a plan most suitable for you. You can calculate your monthly EMI commitment and plan finances reasonably.
Applying with multiple lenders at the same time
Whenever you apply for a loan, the financial institution initiates a request to check your credit score. This is considered a hard inquiry. Each hard inquiry gets registered in your credit history and lowers your credit score, whether you receive a loan approval or not. Thus, you should always conduct due research and compare lenders before applying for a loan.
A personal loan offers a great way to meet your additional or emergency expenses swiftly. However, to secure the best loan terms and quick loan approval, you must avoid the above mentioned mistakes and proceed carefully.