One of the main reasons why people prefer opting for personal loans when in need of money is because of its versatility. When your personal loan is approved, and the money gets disbursed, you can use the money however you please and the lender does not monitor how you use the money.
However, taking a personal loan is not as easy as it sounds. There is a proper procedure in place and you also need to fit into the eligibility criteria set forth by the financial institutions before they approve your personal loan application. The banks have a very stringent eligibility criteria and approval process, whereas, the Non-Banking Financial Companies (NBFCs) are more flexible.
But you need to be very accurate when you are applying for a personal loan. Even the smallest mistake can lead to a personal loan rejection. Here are the most common mistakes that people make while applying for a personal loan:
- Not Checking Your Options:
If you do not check out all your options, you might end up paying more. Different financial institutions offer a different rate of interest and no two financial institutions will offer you the same interest rate. You should choose to opt for a financial institution which is offering you the lowest interest rate as it will help you save some funds in the long run.
- Not Checking Your Credit Score:
Your credit score is one of the most important things on your personal loan application. Having a good credit score will help you with your personal loan application. The banks need a credit score of 750 to approve your application. The NBFCs are more flexible in terms of credit score. If you have a credit score below 750, you can apply with an NBFC as there is less chance of your loan application getting rejected with them, as long as your other documentation is in place.
- Not Checking the Fine Print:
The biggest mistake while taking a personal loan is not reading the fine print. This mistake can cost you a lot. You need to read through all the documents for the loan and get all your doubts cleared if you have any. Ask your lenders about all the fees beforehand so that you have an estimate of how much you actually need to pay. Charges like processing fees, prepayment fees, etc. are not included in the actual loan amount.
- Not Coming Clean With Your Lender:
It is vital that you do not lie to your lender about your current financial standing. You should tell your lender if you are servicing another loan. If possible, your lender will try to help you by lessening the EMIs that you have to pay on your new personal loan.
- Not considering how you will spend your money:
You need to remember that you have taken a personal loan because you did not have money in the first place. If you do not keep a check on how you are spending your money, you might end up in a lot of debt. Once your loan is approved and disbursed, you need to repay the loan that you’ve taken. If you have a lot of debt, it will reflect badly on your credit score, which might cause a problem in the future.
The above mentioned points were some of the mistakes that you should avoid making at all costs. You also need to keep in mind that if your personal loan gets rejected, it will show up on your credit score as a red flag. If you have a lot of red flags on your credit report, financial institutions might not approve current and future loan applications. So, you need to be careful while applying for a personal loan.