5 personal loan mistakes that might cost you money.

If you are planning to take a personal loan but you don’t know which point to be consider during taking a loan, then you are on the right place.

In this article I will explain you five mistakes you should avoid in the personal loan.

After reading this article you will learn the 5 Mistakes You Must Avoid While Applying for Personal Loan.

Table of Contents

1. Avoiding to check your credit score

Do you really believe that no one keeps track of your missed credit card payments, late EMIs, and loan applications? You’re mistaken.

Your credit score is calculated by keeping track of everything.

Companies look at this score when you apply for a personal loan to determine your creditworthiness. They choose whether to grant you a loan and what interest rate to charge you based on that score.

Therefore, you’re in for a rough time if you’ve never bothered to check your credit score.

Work to raise your credit score by paying your bills on time and lowering your desire for loans of this nature. Long-term, it may facilitate quick acceptance for less expensive loans.

2. Not comparing different options and reading the fine print

While all personal loans initially appear to be comparable. However, if you look closer and read the small print, you’ll discover the significant variations between various offers.

Additionally, you’ll discover a number of low-interest personal loans that you might have otherwise missed.

Do not forget to examine the following items.

Annual Percentage Rate (APR) of the loan
Processing and late payment charges
Prepayment and foreclosure penalties
Flexibility in repayment

3. Taking a loan for a higher tenure than necessary

Your EMI is set based on the loan’s term. Given that the EMI is lowest in the choice with the longest term, you could be inclined to choose it. Don’t commit that error!

Assume you determine the total payment you must make considering all tenure choices. You will notice that it is very high for the longest tenure in those situation.

The percentage of interest component in the EMI increases with length of tenure. The interest on loans with a longer term is significantly more than the loan amount you took out.

Decide on a loan with a shorter term whenever possible. Make sure the EMI fits into your monthly spending plan as well.

4. Taking a loan for a higher amount than necessary

Avoid going overboard and selecting a loan amount that is not strictly essential.

When compared to the interest due to your lender, the interest you earn from the spare funds in your bank account is significantly lower. You thus suffer a net loss.
Prepayment can be costly because there might be fees associated with it.
Your bank account being idle may urge you to make unwise purchases.
Your credit score could be damaged if you miss payments due to the higher EMI.

5. Not keeping your family informed about the loan

Don’t forget to notify your family as much as possible.

You miss out on your family’s suggestions for other possibilities, such as selling off current investments, obtaining a gold or top-up loan, asking a close friend for financial assistance, lowering the cost, etc.

If something were to happen to you, your spouse would experience unneeded financial hardship if they are unaware of your debt responsibilities.

Conclusion

When seeking for other sources of money, you perform good research. Depending on your needs, there are a number of possibilities, so choosing the first one isn’t necessarily the best course of action.

Additionally, resist the need to submit loan applications to numerous lenders. Instead, be organized, patient, and focus on finding a loan that is a good fit for your circumstances.