A personal loan can bail you out of sudden financial challenges, andbecause of the varied monetary needs of modern times, theseare gradually gaining popularity. Personal loans are easy to get and are offered by most top financial institutions.
To make the most of your loan, you must remember a few guidelines. More importantly, you must avoid these common mistakes while dealing with personal loans:
Common personal loan mistakes to avoid
- Incorrect EMI structure: One of the main reasons people might default on a personal loan could be an unfavourable EMI structure. Personal loans are expensive, so it is best to close them quickly. But opting for higher EMIs could make them unaffordable. Instead, opt for EMIs that are practical and easy to pay. You might have to make a marginally higher payment overall, but you will be disciplined in your schedule without overstraining your finances.
- Defaulting on payments: Many factors may cause you to miss an EMI payment such as unaffordable EMIs, forgotten due dates, etc.However, you must never default on your personal loan instalments as it could lead to serious problems like heavy fines and a bad credit history. Make auto-payment arrangements to ensure that you never default on the EMIs.
- Not knowing the CIBIL score:A common mistake is submitting a personal loan application without knowing your CIBIL score. Since a personal loan is an unsecured loan, the lender will consider your credit score before sanctioning the loan. If the score is low, you may not be given the loan. So, find out what your credit score is before applying for the loan. You can visit the official CIBIL website to know your credit history. If it is low, try to fix it as soon as possible.
- Not clearing your debts:As mentioned, personal loans are given to people with good credit scores. To have a good score, you must have a clean repayment history. So, if you have any existing debts, such as unpaid credit card bills or incomplete loan repayments, clear them all. This will make it easier for you to get a good personal loan at a good rate of interest.
- Applying at several banks: Never apply for personal loans at several banks at the same time. When you apply for a personal loan, the lender asks CIBIL for a copy of your credit score. If CIBIL finds out that several lenders have requested your details, your credibility as a borrower gets compromised. Additionally,some lendersmay not want to do business with you.
Getting a personal loan sanctioned is not difficult if you avoid these simple mistakes. Maintain a good credit score and stay as debt-free as possible.That would make it easier for you to get the loan at a cheaper price. Also, remember to compare the available loans before you finalize one.This will also help you find the best option.