5 Common Personal Loan Mistakes That You Should Avoid: A Personal Loan is one of the most preferred forms of the financial assistance when it comes to a financial crunch. Getting a personal loan is easy today, but the same friendly personal loan can become a huge financial burden if you make a wrong move.
Here is a look at five common personal loan mistakes that you should avoid:
1) Taking Several Personal Loan At Same Time:
A personal loan is one of the costly forms of loan. You should rely on it only if you have a real financial need and you have no other options to arrange money. Many borrowers, who are prone to taking loans for every small reason, make it a matter of routine to service more than one personal loan at a time.
Taking more than one costly loan can not only damage your finances and savings but also harm your credit score. Therefore, do not rush into applying for a personal loan for any financial requirements. Firstly understand your requirements and then apply with one single financial entity after checking all possible options of raising money.
2) Borrowing Money More Than What You Can Repay:
Many personal loan borrowers end up doing the mistake of borrowing money more than what they require, which they eventually find difficult to repay on time. Remember, a personal loan is your friend, but with the high-interest rates involved, it can become harmful especially if you have too much to repay. So, take a loan only if you need it and up to the limit of your actual need only. Limit your personal loan borrowing to 35% to 40% of your monthly income after deducting your monthly expenses.
3) Taking A Personal Loan Without Reading The Fine Print:
How often do you read the fine print when availing any service? If you are signing on the legal paper or any document without going through the details of your personal loan, you are putting yourself at a critical financial risk. If there is any conflict or misunderstanding between you and the lending institution, the fine print or terms and conditions of the loan form the boundaries for the conflict resolution. If you have signed without reading carefully, you will have to fulfill the obligations as listed in the loan terms and conditions even if you do not agree with them in principle.
4) Opting The Personal Loan For A Long Tenure:
Do not take a personal loan for the maximum possible tenure just because the lender is offering it. Financial institutions offer personal loans up to 7 years. The higher your loan tenure, the higher will be your final amount repayable for the loan. The EMI on a longer tenure may look pocket-friendly, but you end by paying more overall. So, choose the shortest tenure period that is comfortable for you instead of opting for a long tenure.
5) Taking The Personal Loan Without Comparing:
Just because a personal loan is easily available, it does not mean it is the best solution for your need. For example, if you are an existing home loan borrower, opting for a top-up loan can be much more pocket-friendly for you as compared to a personal loan.
There are also many other easy loan options which are cheaper than a personal loan, like a loan against FD, gold loan, loan against security, etc. Compare the various options available with your bank rather than committing yourself to a personal loan. Also, compare the interest rates of personal loans of various banks and NBFCs before taking a final result.