A personal loan is highly popular among people when it comes to unsecured and instant loans. But people sometimes overlook certain aspects while applying for a personal loan. Because of that, they face rejection or delay in getting a loan. These back and forth of applying and getting rejected or delay, waste your time and energy. And the whole point of a quick personal loan is lost.
We bring you the list of the following common mistakes while applying for a personal loan. So that you can learn from other people’s mistakes and avoid them in your case. Let’s check out what “not to do” to get to the best way to apply for a personal loan.
1.Not Checking Your Credit Score
Whenever you decide to apply for a personal loan, check your credit score first because the lender bank will also do the same. It is a history of your debt repayment. A credit score above 750 is considered healthy. But a credit score of less than 750 can get your loan rejected. Or else, you will get the loan at a higher interest rate.
Don’t assume that your credit score will be good because you paid all your debts on time. There can be an error from the credit bureau’s side as well. Get it rectified, and then submit your loan application.
2.Coming Across as a Credit-hungry Borrower
If you are in desperate need of money, you might think that the best way to apply for a personal loan is to apply in multiple banks at once. But these numerous applying can cost you your credit score. The system is interlinked. The credit report bureaus initiate a hard enquiry on a person applying in multiple NBFCs. This, in turn, decrees your credit score.
You are tagged as the Credit-hungry borrower by the institutions. Because of this tag, your interest rates might get decreased. Thus you should apply to a single bank only at a time. If your credit score is good, your loan will get approved.
3.Not Exploring All the Options
There are so many banks and NBFCs that are offering personal loans. Some might provide lower interest rates, and others might be flexible with the tenure. There are banks which provide secured personal loan with collateral. But you get a lesser rate of interest. You must collect the knowledge and information about the lending bank’s terms and conditions before applying for a personal loan.
In this way, you can compare and decide the best option. You can get the help of an online comparison tool as well. Many websites provide a comparison between the personal loans of various banks.
4.Choosing Long Tenure Without Thinking
You research a lot on the things you need to apply for a personal loan. But not much is thought about the kind of tenure and EMI which is suitable for you. Although repayment tenure directly affects your EMI amount and interest rate.
The longer the tenure, the less instalment you need to pay each month and vice versa. But there is a flip side to it. By the end of a long tenure, you will end up paying more cumulative interest. So make a conscious decision based on what is essential for you.
5.Not Being Responsible With Loan Amount
A personal loan is a liability. It would be best if you don’t accumulate liability in your life for recreational purposes like travelling, partying, buying super expensive things which you don’t need. This kind of unreasonable expenses will improve your lifestyle temporarily. But they will trouble you later.
So take a personal loan for a genuine financial need like cash infusion in business, marriage expense or a medical emergency.
6.Not Enquiring About the Eligibility Criteria
Relying only on your credit score and monthly income is one of the most common mistakes people commit while applying for a personal loan. These are not the sole deciding factors. Banks have an entire list of eligibility criteria like your age, residential area, profession etc.
They build your profile based on all these factors. Research the Eligibility criteria of the bank before submitting your personal loan application. You can improve on certain aspects and increase the chance of your loan approval.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected]