Personal loan is generally a preferred loan option if you need instant funds. It requires minimal documentation, and zero security or collateral. Documents required for personal loan are identity proof, address proof, and income proof. Best part about this loan is it does not come with end usage restriction and allows instant personal loan disbursement within 24 hours if applied through online platforms. However, such ease in availing a personal loan may make you undermine certain important aspects when availing it. Any mistake can cost higher interest payout or charges and can also land you into debt trap.
Know some of the mistakes you could make while availing a personal loan
- Not reviewing your credit report timely
When you apply for any personal loan, lenders avail your credit report for assessing your creditworthiness. Few lenders also have started to consider your credit scores for fixing your personal loan interest rate. If you have a higher credit score, you may get a loan disbursed at a lower personal loan interest rate. Thus, make sure to fetch your report because any mistake in it can lower your score and thus your personal loan eligibility. Report the mistakes, if any, to the lender and credit bureau for correction. A corrected credit report will enhance your score and thus your personal loan eligibility with better personal loan interest rate and conditions. Credit report fetches through online platforms can also get you a pre-approved credit option, an instant personal loan, which is available based upon your credit score.
- Applying directly with different lenders
Credit bureaus list all your credit applications in the enquiry column of your credit report. A direct credit application with a lender is considered a hard enquiry and can lower your score by some points. Hence, applying for a personal loan with multiple lenders in a short period of time can exceedingly lower your credit score. In place of directly applying with lenders, consider approaching online lending markets to know the appropriate lender as per your credit score, annual income, and various other eligibility parameters.
While such lending markets also fetch your credit report from credit bureaus, such retrievals are looked upon as soft enquiry, which do not hamper your credit score in any way. Thus, before you click on the final personal loan apply button on the lender’s platform, ensure to check the apt lender through online marketing platforms.
- Avoiding your capacity to repay
An optimum personal loan EMI is the one that results in the lowest interest outgo with zero adverse impact on your existing EMIs, monthly mandatory expenditures, and contributions towards your crucial financial goals. Selecting a particular personal loan EMI without factoring in your repayment capacity may land you with an aggressive EMI schedule. Note that having an aggressive EMI schedule negatively can affect your financial goals and savings and result in EMI defaults during an unforeseen financial emergency. Use personal loan EMI calculator to calculate the personal loan EMI as per your repayment capacity.
- Avoiding personal loan offer comparison among different lenders
Personal loan is an extremely competitive option served by different banks/NBFCs. Their interest rates and charges for the same credit score, repayment tenure and loan amount can differ widely across different lenders. Striking a comparison amongst different lenders can help you save in terms of interest outgo. Hence, approach online lending markets to compare personal loan interest rate, processing charges, prepayment fees and other conditions provided by different lenders before finalizing a specific one.
A loan is an important financial commitment. May it be a personal loan or any other loan; you must manage your repayment diligently and avoid any unpleasantness in the future. As prevention is better than cure, it is always a good decision to be aware about all the implications a loan holds before availing it.
Avoid making the above common mistakes to boost your personal loan eligibility and get lower personal loan interest rate and other charges.