Most of us apply for a personal loan when there is some kind of an emergency. We do this when we have exhausted our savings and all our other options. If used in the right manner, a personal loan can help with immediate financial help and allow you to overcome a troubling situation.
However, most of us make the mistake of not doing our due diligence when applying for personal loans. These mistakes can cost us dearly leading to continued periods of stress and tensions.
In this resource article, we are going to look at some of the mistakes that should be avoided when applying for personal loans. Before we get to the list of mistakes, let us first look at why personal loans are so popular.
Personal Loans: What are they and why are they so popular?
A Personal Loan is a sum of money that is lent out by a bank or a financial institution to an individual basis some pre-agreed terms and conditions. It is a simple, effective, and convenient way of getting finance.
After availing of the loan, an individual needs to repay the same in the form of monthly EMIs over an agreed period. This includes a rate of interest over and above the principal amount. This rate of interest varies from bank to bank.
With so many different options in the industry, personal loans have become one of the most preferred methods of availing easy finance thanks to their-
- Fewer documentation requirements
- Fast and easy disbursal of the loan amount
- Zero requirements for collaterals
- No terms and conditions on usage of funds
- Lower rates of rejection
List of 5 Mistakes to Avoid when Applying for a Personal Loan
1. Applying for too many Personal Loans from Different Banks
Most individuals think that the more banks they apply to, the higher will be their chances of getting one. In personal loans, the rejection rates are not very high. This means that banks will offer you small sums of personal loans. What happens is that you get approvals from more than one bank and fail to reject them. This makes you pay interest to different banks.
2. Going for a Longer Tenure thinking it will be more convenient
We are under the impression that the lower the EMI amount, the more convenient will it be for us to repay the amount. This is a wrong notion. If your EMI is low, it means your loan period is high. This means you will be paying back the loans with a lot of interest over the years. If the interest rate and the loan period are high, you will end up paying more than the principal amount.
3. Failure to Read the Loan Document Carefully
Most of the time we are in such a hurry to get money into our accounts that we fail to read the loan document and agreement carefully. This makes us vulnerable to unequal and exploitative terms and conditions of the banks. For example, some banks do not offer foreclosure or accept a humongous fee when it comes to foreclosure. This is why you need to read the agreement.
4. Availing of a Loan when other Options are Available
You need to understand that a personal loan should be the last resort to arranging finances. If you are working somewhere, you might want to request the employer for a salary advance or use funds like the PPF or the EPF that are your employment savings first. Both these methods ensure that you are not paying any kind of interest. These avenues need to be exhausted first.
5. Taking a Personal Loan for Trivial Pursuits
If you want to fund your vacation, or throw a huge party for your friends or show your luxury life on Instagram, a personal loan is not the option you should go for. Unless you have some kind of emergency and you require immediate funds, you should refrain from taking a personal loan.
The Bottom Line
In this article, we have looked at some critical aspects of personal loans. More importantly, we have discussed some of the major mistakes that we end up making when applying for personal loans. If you have any more queries, you would like us to answer, drop them in the comments section below. If you are looking for a credible financial institution to avail of a personal loan from, visit- https://ukcredit.sg/