Common Mistakes to Avoid When Applying for a Personal Loan

When you need access to quick cash to meet an emergency expense for a lifestyle purchase, applying for a personal loan can come in handy. Today, many lenders in India, including banks and NBFCs (non-banking financial companies) like India Shelter, offer unsecured personal loans at competitive interest rates and flexible repayment terms. 

An unsecured loan essentially means you need not provide any collateral, security or a guarantor to secure the loan. While loans are easily available when you apply, you must be careful when submitting your application to the lender and know the financial mistakes that can impact your financial health and approval. 

 

If you are a first-time personal loan applicant, here are some common financial mistakes to avoid. Read on!

 

• Overlooking the importance of credit score

When you apply for a personal loan or any other type of credit, the lender will consider your credit score as one of the most critical factors to assess your eligibility and determine the maximum amount they can approve accordingly. This is because, for a lender, your credit score is a reflection of your credit behaviour and creditworthiness. 

All lenders have a minimum credit score requirement that they require the borrowers to have. Although it may vary from one financial institution to another, most lenders generally consider a credit score of 700 or more good. And, if your credit score is high, you can get the loan approved faster and get more favourable repayment terms. 

So, when you are applying for a personal loan, make sure that you first check your credit score and choose the right lender accordingly. 

 

• Borrowing more than you can repay

A lot of personal loan applicants make the mistake of borrowing a higher amount than they can afford to repay. Today, many lenders in India offer pre-approved personal loans to many people based on their past credit history. 

And, if you receive such an offer and the lender is willing to offer a high amount, it is paramount that you avoid the temptation of borrowing more amount than you actually require. It is advisable to do a thorough assessment of your financial condition and borrow only the amount that you can comfortably repay. 

 

• Choosing the loan tenure without any consideration

One of the most common mistakes in financial planning that people make when it comes to availing a personal loan or any other form of credit is not choosing the right repayment tenure. As a borrower, you may want to pay off the loan as soon as possible and be debt-free. However, this would mean choosing a shorter repayment term with higher EMIs (equated monthly instalments).

This strategy may not be practical for you if you don’t have the financial means to pay the high EMI, and you may find yourself falling into a debt trap. Hence, it is advisable to use a personal loan calculator to know the exact EMI payable for different tenors and choose the right repayment term accordingly. 

 

• Not checking the fees and other charges

Most financial organisations offering personal loans levy certain fees and charges when assessing the loan applications they receive. This may include processing fees, administrative charges, foreclosure fees, etc. As a loan applicant, you must be aware of the charges involved and save yourself from unpleasant surprises in the future, like high prepayment penalties and hidden charges. 

So, before you sign the loan papers, make sure to read the terms and conditions carefully and proceed with the loan only if you are fully satisfied with the terms and are happy with the fee structure. 

 

• Failing to compare the lenders

When you do a simple online search for the ‘best personal loan offer,’ you may come across many suggestions and lenders’ websites that offer the loan at the lowest interest rate. However, you must resist the temptation to borrow from any random lender just because their interest rate is low. 

You must be prudent with your decision-making; compare the loan offers from different financial organisations in terms of interest, repayment flexibility, charges involved, loan processing time, quality of services offered and other features, and choose the right lender accordingly. 

 

Conclusion

Getting a personal loan is the most feasible way to get quick funds for emergency needs or lifestyle purchases. You can avail of the desired funds and repay them comfortably over an extended period without compromising your other financial goals. 

If you are looking for other loan options like a home loan or a loan against property, you can consider applying for a loan with Indian Shelter, one of India’s leading NBFCs. You can get a loan amount between Rs. 5 Lakh to Rs. 50 Lakh, and a wide range of other benefits like dedicated customer support to address your queries and a balance transfer facility so that you can repay the existing loan at a lower interest rate and better terms.