Applying For A Personal Loan? Here Are 5 Money Mistakes To Watch Out For!


Have you ever considered taking out a personal loan? Well, these collateral-free loans are versatile in nature and make for an exceptional financial tool, given their repayment tenure and prime interest rates. You can use funds from a personal loan to recover from debt, medical emergencies, finance your wedding, or even cover daily expenses if you are cash-strapped.

Taking out a personal loan has never been easier, thanks to hassle-free online applications, quick approvals, and disbursals. Moreover, it is a great tool to swiftly relieve you from financial distress. However, if you are not being prudent about your choices & make careless decisions while choosing & applying for a personal loan, you could end up in a financial crisis.

If a personal loan is on the cards, you should take some time to set clear financial goals and evaluate your repayment options. It is key to remember that even the best investments backfire due to a lack of awareness & research. So whether you have short-term or long-term investment plans, do your research well in advance to get a good idea of what you are getting into.

Here are some common pitfalls you must avoid to keep away from committing costly mistakes while taking a personal loan:

Inadequate research

If you are in urgent need of money, it is quite convenient to jump onto the personal loan bandwagon & choose the first lender that comes your way. However, you should bear in mind that not all lenders will have the same terms & conditions for a personal loan. Besides, by comparing different loan options you will be less likely to miss out on the best deals in the market.

You should keep an eye out for factors like eligibility criteria, interest rates, processing fee, loan tenure, maximum loan quantum, etc. while comparing personal loans and choosing a lender that fulfills your requirements.

Opting for a longer tenure

So now that you have narrowed down on your lender & personal loan of choice, it is time to opt for the tenure of repayment. Most people are tempted to go with the longest tenure since it has the lowest EMI amount. Beware of such mistakes!

Keep in mind that the longer your loan tenure is, the more interest is levied on top of your loan amount. This means you will be paying a considerably higher amount than the total personal loan amount that was taken. Instead, you must estimate your EMI payment in advance and make an informed choice on the tenure based on your finances & how much you can afford.

Neglecting fees & penalties

Lack of research will keep you from learning about certain costs and charges which are levied by lenders while offering a personal loan. If these figures are not covered in time, you could be asked to pay high foreclosure penalties or late fees.

A few of these charges are application fees, origination fees, prepayment penalties, and returned check fees which will be mentioned in the loan fine print. While most of these can be avoided if you make timely payments, it is best to read through the terms & conditions thoroughly to avoid any exorbitant hidden costs.

Not disclosing financial obligations

Before sanctioning a personal loan, the lender will do a quick check on your financial commitments and existing liabilities. This is calculated by taking your debt-to-income (DTI) ratio into consideration. If your DTI is less than 30 to 40%, there are higher chances of getting instant loan approval.

On the contrary, if you hide your debt or financial obligations, the lender could find out about this by checking your credit report & take you for a fraudulent borrower. Alternatively, it can also lead to rejection of the loan, which will further lower your credit score.

Avoiding credit score verification

Your credit score is a key evaluator based on which your personal loan is processed. It is essentially a 3 digit number that signifies an analysis of your credit file. Typically, your credit score will range from anywhere between 300 to 850. The lower your credit score, the greater your potential credit risk & ability to repay a loan amount.

Not evaluating your credit score before applying for a loan can be a huge risk, especially if your score is low. This can result in lenders levying high-interest rates or even loan rejections in some cases. It is important to check your credit score for any unknown errors & rectify them with a credit bureau. This will help boost your credit score & increase your chances of getting instant loan approval.

Getting a personal loan can be of great help to support your home finances or to resolve a cash crunch. However, it is best to make clear & informed choices when it comes to applying for a loan. Hasty decision-making could lead you to pay a hefty price in the future.

If you are still contemplating borrowing money, reflecting on these questions can help you make the right call. Do you absolutely need this loan? Can you meet your financial requirements by budgeting and saving some extra bucks? If yes, then perhaps you can avoid this extra liability.

To ensure that you are on the top of your financial game at all times, platforms like Dezerv can not only help you with smart investment tips & portfolio management but also offer useful wealth creation strategies that can benefit you in the long run.