Getting a personal loan is a very serious financial commitment. If you are planning to avail a personal loan, you should be careful and conduct a lot of due diligence before signing the papers. There are many cases where people commit the most basic mistakes which make their financing experience poor. Here is a list of things you should never do if you are planning to take a loan.
- Not getting your KYC documents in order! The most common reason why loan applications get denied is because of discrepancies in the KYC documents. Make sure you are submitting all the latest documents and filling out your loan application form according to the details on those documents. From the spelling of your name to your address to your contact information, everything should be correct and updated.
- Not checking your credit score before applying! Your credit score is the most important factor which the online personal loan provider will consider for granting your loan. The credit score reflects your previous borrowing behavior. A high credit score means that you make your payments on time and are responsible for the loan, while a low credit score often shows defaults and negligence towards repayment. So, before you apply for a new loan, make sure to check your credit score and improve it by closing your previous loan balances.
- Not deciding the amount that you actually need to borrow, or overborrowing! Many times, the cash loan app will show you your maximum loan eligibility. This does not mean that you should borrow that exact amount. You should decide the amount that you actually need. For example, if you need only one lakh but you are getting eligibility to borrow two lakhs, you should only borrow one lakh because first, over-borrowing can land you in unwanted risk, and secondly using too much of your credit potential also directly impacts your credit score. Borrow only what you need.
- Not deciding which lender you want to choose! There are a number of new-age as well as conventional lenders in the market. Modern cash loan app uses advanced mobile data connectivity as well as online KYC processes. Conventional loan apps tend to follow a physical paperwork-based process, which is slow, expensive, and prone to mistakes. An online personal loan is always a much better deal because the operational costs in an online loan app are very low.
- Not checking the interest rates and processing fees! Before you take a loan, you must take note of what is the interest rate being levied on the loan and what is the processing fee to be paid for the loan. The interest rate is the basis on which all the payments of your loan will be made. It is the cost of capital that you are paying to borrow the money. So, if the interest rate of your loan is high, your EMI will also be high, and you will also end up paying more money as a total in your loan repayment. Similarly, try to ensure that you get a personal loan with low processing fees.
- Can you wait for some time? Now, this may seem like a counter-intuitive factor to consider but this is actually very important and can make a huge difference in all aspects of your loan. Let us say you need a loan in six months’ time. You can start saving money equal to your monthly EMI from right now. After six months, you will actually have to borrow that much less money. This will not only require you to pay a lesser number of EMIs but also a lesser amount of money per EMI. Waiting can also allow you the advantage of lower interest rates, depending upon prevailing market conditions.
- Do you have an emergency fund? An emergency fund is some amount of money, generally equal to two months of your income that you keep in your bank account to accommodate for any loss of income. By having an emergency fund, you will get two advantages. First, it will act as a financial cushion for your daily necessary expenses like food and groceries, etc. while you are searching for a new source of income. Second, it will also act as a way to maintain your credit score by making EMI payments on time even while your income is on hold.
It is important to be very careful about all these mistakes because each of these can have a significant impact on your credit score as well as the loan you take and your ability to repay the same.