Common mistakes while choosing a personal loan

People prefer taking personal loans as they are easily available, quick processing, and have flexible options to offer. Today the personal loan can be taken for any purpose such as travel, child’s education, home improvement, and for many other things.

Are you also planning to take a personal loan? Well, neither you are not the first one to avail personal loan nor the last one. Many of your friends might have taken the personal loan and have managed well their personal loan and used it for the purpose for which they have taken it. But there is one other side of the coin. You might have heard from the people their horror stories about taking a wrong loan and their failure to get the value out of their personal loan.

Now you definitely don’t want yourself to be one of these? Will you run away from taking a personal loan? No, instead you would educate yourself so that you can avoid these unwanted situations.

personal loan

A personal loan is both easy and difficult concept. Here are the common mistakes that people do while choosing a personal loan and fail to get the value out of it:

Lack of clarity over loan purpose

The most common mistake that people do while choosing a personal loan for them is the lack of clarity over the purpose of taking the loan. They don’t know why they want a loan. They just got the offer on their email and they took the loan.No, this is not the right way of taking a loan.

First of all, you must be clear about your purpose of taking the loan such as for going on a vacation, a child’s education, home improvement, for improving credit score or any other thing. But if you don’t know the purpose of availing a loan, then don’t go for it. It’s as simple as that if you don’t need a loan, then don’t take it. A personal loan is not a small thing. If you are taking it, then you will have to pay it back also that too with interest. If you will not be able to pay back your loan, then you will be a financial crisis.

So, better to make yourself clear about the motive of taking a loan and then take it.

Lack of research

While choosing a personal loan, proper research is required so that you can know what various lenders are offering you. Different lenders will give you different offers such as rate of interest will differ or loan amount might differ. This is up to you how much amount of loan you need. It is always suggested that don’t jump on the first offer that comes your way. With proper research, you will be able to choose from the available offers that suits best to you.

Ignoring the credit score

This is one of a crucial factor while checking your eligibility for the personal loan. If your credit score is good, then you will get one of the best offers for the personal loan.

Banks and other lenders take into consideration your credit score and history so that they can see that whether you are responsible enough in paying your credit card bills and your monthly installments. If you will have a bad score and history, obviously the lenders will hesitate in giving you a loan as they will find risk in repayment of the loan.

Taking more loan than required

There are chances that you might be eligible for more loan amount, but it is always advised that you must take that loan which is actually required. For example, you might be eligible for Rs 5 lakh loan, but you need only Rs 2 lakhs, then you must take only two lakhs rather than taking the whole amount of five lakhs. If your amount of loan is high then, your interest rate and EMI will also be high. So, choose wisely your loan amount after all you to pay the whole amount along with managing all your other financial commitments.

Failure in reading the fine print

There have been chances that people ignore or avoid reading the terms and conditions of the loan agreement. By doing this they remain unaware of any kind of charges. They also miss some kind of important information and also the hidden clauses of the agreement. So, before signing any document of the loan, it is better to read the fine print and be clear about each and every aspect of the loan.

Incomplete paperwork

Well, you have been busy and didn’t get time for the tedious work of arranging your documents  If  you will not present your complete documents with your loan application, it might see a rejection or take much longer time than required. So, better to complete all the documentation so that your loan application gets approved easily.

So, if you are planning to have a personal loan, then make sure to keep in mind the above points so that your personal loan experience should not be painful like others.

Shipra Aggarwal (Guest Post)