Need it, get it! That’s how easy getting personal loans has become these days. So, whether you are thinking of buying a smart gadget, wish to finance a marriage, or just want to go on an international family trip, a personal loan offers a quick and uncomplicated solution.
Moreover, most financial institutions offer quick personal loans nowadays. Their application process is simple, and the loan disbursal is within a couple of days.
However, some crucial aspects must be taken care of while applying for a personal loan to get the best deal.
Before applying for a personal loan, you must do extensive research, but an oversight can prove costly. Here are five mistakes that you should avoid when applying for a loan.
Not Comparing Enough
As most financial institutions offer personal loans, you believe all are the same and have similar terms and conditions. However, this is not the case; there are many variations.
Some may be obvious in the comparison, while some may require you to dig a little deeper.
Focus on the lender’s reputation, compare interest rates, and find out about the prepayment charges, late payment penalties, and processing charges. Compare lenders based on these aspects, and then choose a lender who offers a loan on the best terms per your needs.
Do not get drawn by advertising and promises that sound too good. Always read the fine print before you sign the agreement. Focus on the lender’s reputation, too, before making a choice.
Not Focusing On Your Credit Score
Your credit score is an indicator of your creditworthiness. A good credit rating indicates you are a responsible borrower. Lenders prefer applicants with a good credit history and sanction them loans at favorable terms. Paying your dues on time and not being credit-hungry can help you maintain a good credit score.
Before you apply for the loan, check your score, this will reduce your chances of getting the loan application rejected.
Reviewing your credit report a little before applying for a personal loan gives you the time to check for any discrepancies. If there are any errors, you can request the credit bureau to rectify them. As a result, your score improves, and your chances of getting a good loan deal are brighter.
Borrowing More Than You Need
Personal loans are easy to get if you fulfill the personal loan eligibility criteria. However, remember, whenever you borrow, you have to repay the amount along with interest. While you may be eligible to borrow a higher amount, apply for an amount you need and can repay.
A personal loan can help you deal with an immediate liquidity crunch but will impact your cash flow for the coming months. So keep your budget in mind when you apply for a loan.
Personal loan lenders charge a high-interest rate; keep that in mind. A bigger loan would mean higher EMIs. If you do not make timely payments, lenders charge exorbitant penalties. Missing EMIs will also impact your credit score.
Applying To Multiple Lenders
When you apply for a loan, the lender asks for your credit report. This is the first step in a loan application process scrutiny and is known as a hard inquiry.
Each inquiry by a prospective lender is mentioned in your credit report. Multiple hard inquiries within a short span will lower your credit score. When you apply to multiple lenders simultaneously, you get several inquiries in your credit report, lowering your score and reducing your chances of getting a loan approved.
The sensible approach would be to check the eligibility criteria and the application process online before approaching a lender. Once you know the requirements, you should apply if you meet the eligibility criteria to minimise the chances of loan rejection. This will save you time and not impact your credit rating.
Not Exploring Alternatives To Personal Loan
Personal loans are expensive, and the interest rates may range between 10% to 49%. These loans owing to their simplicity and quick turnaround time, are popular among those who need funds quickly.
However, there are alternatives available to deal with the need for funds. You can explore options like loans against property, top-up home loans, loans against securities, loans against gold, or loan against deposits.
These loans are simple to avail. The interest charged may be lower in some cases, and there is no restriction on end-use, like a personal loan. Those with long-term deposits can avail of loans against them. Also, home loan borrowers with considerable loan tenure can consider a top-up loan.
You should evaluate each option for its suitability.
Some Other Aspects To Consider
Let us look at a few aspects you should consider when applying for a personal loan.
Loan tenure
Loan tenure is a crucial aspect to consider when you apply for a personal loan. A longer-term reduces the monthly instalment burden but increases your overall loan cost.
The idea is to strike the right balance so that you can repay the loan with ease and, at the same time, keep your loan cost low.
Prepayment terms
Sometimes you may have spare funds available and may want to prepay your loan; this can help you save the interest cost and make you debt-free. Some lenders may charge a prepayment penalty; it is a good idea to get clarity on this when applying for a loan.
Turnaround time
Often, applicants apply for a personal loan as they need funds urgently. If the application process or disbursal takes too long, the purpose of applying for the loan is lost.
Before you finalise a lender, find out the turnaround time. This will ensure you get the funds on time to fulfil your requirement.
To Sum It Up
Personal loans can help you in times of need. As in the case of any financial product, being aware of all terms and conditions and understanding the fine print helps make the right choice. The same applies to a personal loan. Research well and avoid the mistakes discussed above to ensure a hassle-free experience. If you are ready to apply for a personal loan, check out Clix Capital today! They offer instant personal loans that are fast and accessible, with minimum paperwork and quicker sanctions.