Personal loan is often the most reliable means of meeting the needs of extra money. Not only this, increment is easily available to individuals with a good credit score and regular income, but it also gets processed immediately. Due to this, it becomes a clear option for those who are in dire need of money. Regardless of the easy availability of personal loans as a credit product, it is important to know about the biggest mistakes that can arise while taking a loan. Otherwise, it could turn into a huge mistake in the hurry for you. Below here I present you few common mistake that everyone should avoid to be safe and peaceful.
Always keep a track of your credit score:
Your qualification for a personal loan depends largely on your credit score. The more credit score, the more credit you will get. Read about CBIL, get to know what it is. With more scores, the lender will easily give you a loan, if you have low score, then your loan application will be rejected and your credit score further declines for every decline and enquiry.
Knowing your score before applying for a loan will give you the power to negotiate with better terms and conditions on the personal loan agreement. Therefore, it is always better to know your credit score before applying for a loan. You can think of improving your score before applying or can wait for a few days.
When you think of taking a personal loan, first select your lender and meet them to make sure and check you are eligible for a loan or not. Then the lender will soft check your credit score and see whether you are eligible for a loan or not. Doing this will not affect your credit score, but will help you understand your credit eligibility. In fact, at this point most banks or lenders will give you an estimate of your loan rate and terms.
Don’t just focus on EMI
Before taking a personal loan, you will have to pay EMI; It is natural to pay attention to this. While EMI will cover your principal and interest component to a great extent, there may be some other charges that may or may not be related to you. This includes process fees (upto two and a half percent of the loan amount), late fees, prepayment penalties, foreclosure charges etc. Therefore, make sure that you know every aspect connected to your EMI and try to keep it at minimum.Never use personal loan for lavish purposes
Even if the personal loan becomes easily available, in the end it is a loan that you will have to pay interest on time .Therefore, if you are planning to take personal loans for expensive gifts, gadgets, elegant items, or to celebrate the great holiday, then you must think once. As far as possible the loan should be taken for those things which are necessary or urgent, such as –
- Debt consolidation
- Home renovation
- Business expansion
- Medical emergencies
Never trust the sales agents-read all the Terms & Conditions by yourself
Buying a personal loan means committing yourself financially with a higher interest rate. However, it is very tempting to trust the seller and read the terms and conditions without the terms and conditions of the loan agreement, but you should avoid doing so at any cost. You should take the time to read the fine print of the loan and if possible, seek help from someone who has a better understanding of financial transactions. If you have a salesperson that looks very trustworthy, or even if you put a lot of emphasis on signing the contract, don’t be in a rush.
Never opt for a higher amount than you can pay
Depending on your income and credit score, you may be eligible for a large amount of loan. But this does not mean that you can borrow more than you need. You must understand that a large loan amount will bring with you a large EMI and a larger interest component. Therefore, before applying for a personal loan, assess how much money you need, and choose the loan amount as much as you need. However, doing so may seem a bit restricted, but it will ensure that you will be able to pay your EMI efficiently which will be affordable for you in the long run.
Also, Paying the total loan before the maturity date does not only end your financial burden as soon as possible, but also eliminates the interest in EMI saves you a lot of money. However, most lenders impose prepayment penalties, which can be up to 0.5% to 5% of the remaining loan amount.
To make sure that you can repay the loan at your convenience, read it carefully before signing the loan agreement, and make sure that the lender does not pay any penalty or repayment of loan
Never miss out any payment
It is not a hidden fact that your credit score decreases when you make a loan payment late. In addition, most lenders also levy a fee on late payment. That is why, at any cost you should not make this mistake. There is a great way to fill the loan over time with the option of Electronic Clearance Service (ECS) or set up automatic payment of any other method.
Defaulting on payments
This is the biggest mistake you can make regarding personal loans.Initially, the lender can send you a notice regarding this. If you still cannot deposit the loan amount, the bank can take help from collection agents, which can cause you much discomfort and of course, omission of the loan payment will also be shown in your credit history and will affect your credit eligibility for a long time. And in the future it will be very difficult to take any loan for you.