A personal loan is an unsecured loan that you can use for any type kind of expense, be it a wedding, education, travel, home renovation, medical emergency, or used car purchase. It is quite popular among borrowers, primarily because it is collateral-free and lenders do not put any restrictions on its usage. However, one thing to keep in mind is that you must take a personal loan for emergency use only and not apply for it just because you can. Discussed below are a few things you should not do with your personal loan.
1. Taking a Loan When You Don’t Need it
As mentioned above, you must take a loan only when you need it. NBFCs have made it extremely easy and quick to apply for loans. They even approve your loan and disburse your amount within a matter of minutes. But that doesn’t mean you can take it just for the sake of it. After all, you have to pay for it eventually. So, take a loan only when you are short of funds and need money to meet an unavoidable expense.
2. Taking More Loan Amount Than You Need
Just like you should not apply for a loan when you don’t need it, you should also not apply for a big amount either. Assess your requirements first and then apply for a personal loan for the minimum amount you need. Some people have a tendency to apply for a bigger amount just to be on the safer side. But eventually, no one but you have to pay for it. The higher amount you borrow, the bigger the interest amount you will have to pay and the larger EMIs you will have to adjust in your monthly budget.
3. Applying for Several Loans at a Time
Sometimes, potential borrowers apply for several loans at a time with different lenders and banks. By doing this, they want to ensure that at least one of them will be approved. But in reality, it is not a good practice. Instead of helping you, this trick can ruin your chances of getting an approval from anywhere.
Approval of your personal loan depends on several factors, including your credit history, credit score, income, and repayment capacity. If you make too many loan applications simultaneously, it becomes evident to the lenders that you are credit-hungry. As a result, all of them may end up rejecting your loan application. Such a situation also takes a heavy toll on your credit score, thereby reducing your chance of getting a loan approval in the future as well.
4. Being Ignorant Towards Choosing the Repayment Tenure
The repayment tenure is an important factor that you must choose carefully. Clix Capital allows you to choose a repayment tenure ranging from 12 to 48 months. However, the longer tenure you choose, the more interest amount you have to pay on your loan. If you want to avoid spending unnecessarily on interest payments, you must choose a shorter tenure for repayment. That being said, choosing a short tenure has its disadvantages too, as it will increase the amount you pay in each EMI. If they become unmanageable within your monthly budget, you may miss some of them, as a result of which your credit score may be affected.
No one else knows how much money you can afford to pay towards your EMIs every month. So, evaluate your income and expenses and choose a repayment tenure accordingly.
5. Applying for New Loans When You Already Have One
Having several active loans at a time is not advised. The loan amount approved for you depends on your credit score and eligibility. If you do not receive a sufficient amount from one loan, you should not commit an error of applying for more loans. By doing that, you will portray yourself as a credit-hungry borrower, which will eventually affect your credit history and score. Besides that, you will be under heavy debt due to several active loans in your name.
6. Missing EMI Payments
Once you receive your loan amount to address your expenses, do not forget to repay your lender on time. Avoid making late payments and never skip your EMIs. Not paying your loan on time will have an ill-effect on your credit score, and your creditworthiness. As a result, lenders will become reluctant to give you any loans in the future.
7. Ignoring the Loan Terms and Conditions
While accepting a loan offer, do not forget to go through its terms and conditions carefully, especially the fine prints. Staying informed about these conditions would be helpful in case of any confusion or discrepancies. Also, go through the loan documents when you receive them. Point out any error and have it corrected immediately, especially anything related to your loan amount, interest rate, repayment tenor, etc.
Now that you know what things that you should never do with your personal loan, it would be clear that you must treat your credit obligations with a sense of responsibility. Apply for a personal loan only if you need to meet an urgent expense and ensure that you repay it on time. Avoiding these things can help you stay out of trouble.
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