by Nevertheless, individuals must understand the mistakes to avoid while planning to apply for personal loan online. Such knowledge will aid borrowers in selecting the right option and also restrict financial burden during repayment.
Mistakes to Avoid while Selecting a Personal Loan
Since personal loans involve considerable interest rates, a wrong step can significantly mess up your finances. Nonetheless, here are some of the mistakes you must avoid when applying for an instant personal loan:
- Not comparing lenders
Before availing of any credit facility, it is essential to compare different loan options available in the market. Often mistakes happen when you apply for multiple loans or choose more than one lender to avail of quick loans. This indicates your credit-hungry behaviour, thereby impacting the chances of loan approval. Besides, you should not get tempted to borrow from a certain financial institution because of low-interest rates without reading all the fine print. Therefore, you should always compare lenders before settling for the right one offering the maximum credit benefit.
- Not being aware of credit score
Personal loan eligibility chiefly relies on your credit score and repayment history. If your credit score is higher, your creditworthiness will be better. On the other hand, if your credit score is on the lower side, the lender may reject your application for an instant personal loan, thereby hampering your credit score.
Knowing your credit score before applying for a personal loan empowers you to negotiate with the lender for better lending terms. Hence, it is always wise to know your credit score before applying for a loan. With a low score, you can plan the timing of your application accordingly and emphasise improving the score.
- Selecting a longer tenure
Repayment tenure plays a significant role when applying for a personal loan. Often borrowers opt for extended tenure to make their EMIs affordable. Also, it only increases their repayment burden. Hence, one must carefully select the tenure because selecting smaller loan periods will allow him/her to save substantially on the interest component and overall repayment burden.
- Not checking eligibility criteria and documentation
Every lender specifies certain eligibility parameters and documentation for borrowers. By meeting such parameters, you can negotiate with the lender for better interest rate and lending terms. Furthermore, different lenders specify different qualifying parameters such as age, income, credit score, employment, etc. Therefore, applying for an instant personal loan top up after checking the eligibility parameters will allow you to improve your eligibility and avail of the right loan amount.
- Using a personal loan for lavish reasons
Irrespective of the ease of instant personal loan availability, this financing option attracts higher interest rates and must be repaid on time and efficiently. Hence, if you are opting for a personal loan to purchase high-end gadgets, funding vacations, etc., you must give it a second thought. An instant personal loan should always be taken for meeting urgent financial requirements, such as debt consolidation, business expansion, medical expenses, etc. One must have an effective repayment plan in place to avoid financial challenges during the repayment tenure.
- Choosing a higher loan amount
Based on your monthly income, credit score and repayment history, you may be eligible to opt for a substantial loan amount. This, however, does not necessarily mean that you can overborrow. You must be aware that a higher loan amount will always entail higher EMIs. Hence, before applying for an instant personal loan, you must assess your fund requirements and select only the amount that you require. Although it may be a little restrictive, it will ensure efficient EMI payments in the long run.
- Not knowing about prepayment penalties
Prepaying a loan before its maturity not only helps you to get rid of the financial burden at the earliest but also allows you to save considerably in terms of the interest component. However, most lenders impose prepayment penalties over the outstanding loan amount, significantly increasing the overall loan cost. To ensure prepayment at your convenience, read the fine print of the loan agreement carefully before signing and make sure that the lender levies nominal or no penalty charges on loan prepayment.
To conclude, you can avoid these common mistakes when making an instant personal loan application. However, such errors will not only impact your loan approval but will also increase the processing time. Therefore, it is essential to conduct thorough market research before making an informed decision.
