5 Major Mistakes To Avoid When Applying For A Personal Loan

Introduction

A personal is easily accessible and can be taken for any purpose. These loans come with good interest rates and repayment tenure.

But are they being prudent while applying for personal loans?

Well, many people are!

When a financial crisis comes up, a personal loan is the most common option to go for to get the necessary funds. It certainly doesn’t go cheap for the demands going up for these unsecured loans.

The interest rate is usually high, and you need a high credit score to apply for the loan. This is where people make mistakes.

Application to a personal loan comes with many potholes. If you are not careful enough, you find yourself in one of them.

Today, in this article, we will talk about these potholes and how you can avoid falling into them.

Major Mistakes to Avoid While Applying For A Personal Loan

As we have already said, personal loans really come in handy when you are a financial hitch. With the easy availability of personal loans, more and more people are currently using these loans.

Inexperience in applying for loans can lead to mistakes, resulting in your loan application cancellation.

After consulting Lendela, a reputed loan application platform, we have come up with some common mistakes that you need to know and avoid while applying for a personal loan.

Mistake 1: Taking The First Loan Offer

With the multicity of lending institutions, it can be difficult for an individual to go for one. Most people simply go for their first loan offer to save themselves from hassle. However, you might get into one of the worst deals by doing so.

A personal loan being unsecured, the lenders are at high risk. Hence, they charge a pretty high rate of interest. Spending your time going through the options will ensure that you get the best deal with lower interest rates.

Mistake 2: Overestimating The Loan Repayment Capacity

Whenever you apply for a personal loan, you must be sure of one thing – The rate of interest. These rates of interest decide on your repayment capacity.

Ideally, not more than 30% of your total income should go into paying the loan amount. If it exceeds this number, you might be left in a situation where you have to take a loan to repay a loan.

Mistake 3: Availing Loans With Long Tenures

In order to pay smaller EMIs, you might be tempted to go for a longer tenure. Well, you are looking at one side of the coin. It indeed reduces the monthly repayment amount, but the point you are missing is that your interest increases the amount you have to pay.

With longer tenure on your personal loan, you will end up paying more in the form of interest. Conversely, smaller tenure helps you pay less interest and reduce the burden.

Mistake 4: Not Checking The Credit Scores

It is important that you check your credit score before applying for a personal loan. This score is part of your eligibility criteria and decides the upper limit of your loan amount. If you have a lower credit score, your application might even get rejected.

Hence, before applying for a personal loan, just check for your credit score to understand what to expect from your loan application.

Mistake 5: Making Multiple Loan Application

When you apply for your multiple loan application with the hope of at least being accepted by one. This might not affect your credit score. But if the institution sends a credit request to the credit bureau, the inquiry is listed in your credit reports. Therefore, it significantly affects your credit score.

These are called hard inquiries and can portray a picture of credit hungriness. This can show your weakness which can be used against you by the lenders.

Final Mistake: Taking Loan Without A Purpose

Most people do not understand the term personal loan. The definition of a personal loan states that you are asking for money from the banks or any lender when you are in a financial crisis.

However, some people simply take loans to fulfill their personal needs of having new clothes, new smartphones, throwing parties, or other desires.

Taking a loan for recreational purposes might seem justifiable under the adrenaline rush but will become a burden later.