Personal loans are the most common financial vehicle that many people consider when there is a financial emergency. A personal loan can bail you out of tricky financial situations but it could come at a cost. Personal loan interest rates are generally high and one wrong move can cost you.
Here are 6 common mistakes people make when they apply for a personal loan.
Taking a Loan for Non-Essential Purposes:
Taking a personal loan for recreational or lifestyle-based purposes is a huge mistake. Take a personal loan only when you have a real financial need.
The interest rates on personal loans are high. Don’t take a personal loan when you don’t have a clear purpose. You will end up paying high interests just because you took a personal loan to meet non-essential needs like throwing a party.
Taking a Loan from an Untrustworthy Source:
There are multiple lenders who provide personal loans but approach only those who are trustworthy. Do your research to determine who the reliable loan providers are. Check testimonials and references to ensure you are not taking a loan from an untrustworthy source.
You can even check online lending sources. Taking a loan from them is not only hassle-free but the sources are also reliable.
Not Doing Loan Comparison Research:
Never settle for the first loan provider that comes your way. Every loan provider offers a different interest rate, EMI tenure, and terms. By comparing personal loan interest rates you will understand what different lenders are offering.
If you shop around a little bit, you can ensure that you get a good deal. Start with your bank and known lenders. Then expand your search and find out who else is in the lending market. This will help you make an informed decision.
Choosing Longer Tenure with low EMIs:
Choosing a longer tenure with low EMIs certainly seems like an easier repayment option, but it isn’t a good idea. Go for a shorter term loan as they are more cost efficient due to the lower absolute payout requirements.
Consider your monthly budget and repayment capacity when you decide your loan tenure.
Not Checking Eligibility Criteria:
Different lenders have different personal loan eligibility criteria, such as income, credit score, age, location, etc.
Apply for the loan after checking your eligibility criteria. This would ensure that your application gets accepted and that you get better loans.
Not Checking the Credit Score:
Almost every personal loan provider checks your credit score to evaluate your creditworthiness. With a low credit score, you may either be rejected or subjected to high interest rates. Contrarily, a high credit score will make you eligible for the best personal loans.
Therefore, check your credit score before applying for a loan. If necessary, you can try to improve your credit score and avail personal loans at a good rate.
By ensuring you don’t make these mistakes, you can get the best low-interest personal loans. Read the terms carefully before signing the papers.