A personal loan can be an easy answer to your urgent financial needs. With easy application and fast approval processes, taking a loan has become much easier than before. however, there are certain things you need to be cautious about, as even a minor mistake can drag you into a big financial crunch. Carelessness and lack of awareness can lead you to a never-ending trap of debts that can severely influence you and your family’s future.
So, here are a few mistakes you must avoid at the time of taking a personal loan so that you can manage your debt conveniently.
Over-Estimating Repayment Capacity
At the time of applying for a personal loan, you must not forget about the applicable interest rates. The amount on personal loan EMIs you have to pay during the loan term depends on these rates. If you do not consider your repayment capacity, you may find yourself spending a major part of your income on repaying the loan. This becomes a burden once you utilise the funds you received from the loan.
Take advantage of tools like the personal loan EMI calculator to get an estimate of the EMI amount before you apply for a loan. Ideally, you should not spend more than 30% of your total income on loan EMIs. This way, you won’t default on your payments, and at the same time enjoy a nice standard of living.
Applying to Several Lenders at a Time
There may be times when you are in desperate need of money and need funds immediately. However, it’s not wise to apply for several loans simultaneously. Each loan application you make invites a hard enquiry on your credit report. During this enquiry, your credit bureau shares your information with the lending institution, based on which the lender determines whether you are worth the approval or not.
Such hard enquiries are detrimental to your credit report and can negatively affect your credit score. As a result, you may be flagged as a borrower ‘hungry for credit’, and the lenders may start charging a higher interest rate from you. So, avoid making loan applications to multiple lenders. You can completely rely on a trusted provider to meet your financial needs.
Not Researching Enough
While it’s true that you should not apply for a loan from multiple lenders, you should take up some research beforehand. Personal loans offered by different lending institutions may have different terms and conditions. There are multiple factors, based on which the lenders approve your loan, such as your age, income, employment history, repayment history, etc. While approving your loan, some lenders give preference to your income, while others are more concerned about your repayment history. Some lenders do not even mind giving loan approval to individuals with a poor credit score. This means that one factor based on which a lender may disapprove your loan may not even matter for another lender.
Depending on what they prefer, the lenders may approve or reject your loan application. They may also increase your interest rate if they find something objectionable. So, do a little bit of research, see the preferences of different lenders, and finally, apply for a loan with the lender who suits you best.
Hiding Details of Previous Debts
Any lender you apply with will look into your credit history before approving your loan. So, you must give clear details about all your previous debts and financial obligations to your loan provider, if requested. Hiding these details can lead to distrust and loan rejection because they will eventually come to know about them from your credit report. So, the best idea is to stay clear about your debts and not try to hide anything.
Ignoring the Fine Print
Once the lenders go through your loan application and verify your documents, they approve your loan and may offer a high loan amount with a low-interest rate. But you should never ignore the fine print written in your contract. Carefully go through each term and condition and have a look at all the levied charges. If you find something suspicious, enquire about it before accepting the loan offer.
Instead of trusting any loan provider, rely upon a lending institution that has been serving in the industry for several years and has built a good reputation for being reasonable and trustworthy.
Not Checking the Credit Report
When you apply for a loan, lenders verify your creditworthiness by checking your credit report. The credit score you receive based on your credit report represents how responsible you are towards your credit and repayments. Ranging from 300 to 850, a credit score over 700 is considered healthy and over 800 is excellent. Although individuals with a lower credit score than that can also qualify for a loan, your credit score plays a significant role in getting loan plans at low interest rates.
That being said, your credit report may have some incorrect entries that might be holding your score down unnecessarily. Therefore, go through your credit report carefully and verify each entry. There can be different types of errors in your credit report, including
- Errors in personal or account details.
- Incorrect days past due recorded.
- Closed account still visible.
- Overdue applied for a closed account.
- Incorrect credit limit recorded.
Look for such errors in your report and raise a dispute with the credit bureau. Eliminating such entries from your report can increase your credit score and fetch you a better loan plan.
Making Late Payments
Although some lenders allow you to make late payments, it is an easy way to rack up your financial stress. Since the loan provider charges late fees for late payments, missing your due date can increase your loan cost. Apart from that, missing payments can also hurt your credit score.
One easy way to ensure that you do not miss your EMIs is to set up reminders or automatic debits from your account. By doing this, you will minimize the chances of falling back on your repayments.
Are you in need of an emergency fund? Apply for a personal loan at Clix Capital while ensuring that you do not make any of the abovementioned mistakes
Once your loan is approved and documents are verified, you will receive your loan amount within 15 minutes* straight to your choice of account.
You can also reach out to us at firstname.lastname@example.org or call us at 1800 200 9898
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