There are many reasons why one would choose to apply for a personal loan – repaying previous debt, buying a house, any unplanned financial exigency or making a huge purchase. While you may want the amount credited to your bank account as soon as possible, it is important to do adequate research before making your loan application and finalizing your loan provider. These are the five mistakes that you should avoid while applying for a personal loan –
Taking Up The First Loan Offer
With the multiplicity of lending institutions providing personal loans, it can be tough to single one out. It is recommended to not opt for the first deal that comes your way. Personal loans being unsecured, are a high risk for lenders and thus they come with relatively high interest rates. You may find a lender that offers you a lower interest rate for a personal loan and thus spending time in reading various offers goes a long way in making the right choice. This can save you lots of money in the long run. You should also spend time in comparing processing fee charges, part payment fee and prepayment penalty fee. In case you wish to prepay the loan it is important to check the charges beforehand. If you wish to have a quick disbursal of funds, you may want to consider applying for the Bajaj Finserv Personal Loan available on Finserv MARKETS. You can get an instant personal loan for upto Rs. 25 lakh along with a flexible tenor period of up to 60 months.
Making Multiple Loan Applications
While you may want to send loan applications to multiple lenders to get the best deal, it may not reflect well on your credit report. When you send out loan applications, the lending institutions send a credit request to the credit bureau to get your credit report. These enquiries are listed in your credit report which significantly impact your credit score, especially if they are conducted in a short period of time. These are called hard enquiries and are not appreciated by lending institutions. This can portray a picture of credit hungriness and spontaneity. It is always recommended to compare various lenders and then submit an application to the shortlisted one two to three lenders. While you are surfing through the loan marketplace online to find the best deal and enquiring about the interest rate and other charges, these are known as soft enquiries that are not reflected negatively on the credit report.
Failing To Consider Your Repayment Capacity
While choosing to apply for a personal loan, always take into account the lock in period, interest rate charges and monthly repayment amount. You must ensure less than 50-60% of your income is used to repay debt obligations. Lending institutions also compute this amount. This is called the Fixed Obligation to Income Ratio (FOIR). In case your repayment capacity is low, you must opt for a loan with a longer tenure to lower your monthly repayment amount. Although this may result in higher interest charges, you can try to repay your loan at an earlier date whenever surplus funds are available to manage the same. It is important to consider that the prepayment penalty charges must be less that the overall interest rate charges to ensure net savings.
Ignoring Personal Loans Alternatives
Depending on your needs and requirements for funding, you may consider alternative loan options. For example, if you are an existing home loan borrower and are looking to renovate your house you may choose to opt for a top up home loan. They usually come with lower interest rates and longer tenure options. There are also loans against FDs or loans against securities for individuals with sizable investments who may want to consider this opportunity instead. They also come with no end usage restriction like personal loans.
Not Reviewing Your Credit Report
While you may need to get an instant personal loan, it is worthwhile going through your credit report. The credit report is a summary of your financial debts which are reviewed by lending institutions before processing your loan amount. This is done to gauge the financial health of the individual and repayment capacity. The main credit bureau in India is the TransUnion CIBIL which publishes the CIBIL report. This CIBIL report contains a CIBIL score which ranges between 300-700, where a higher credit score indicates higher creditworthiness. Sometimes, this score is very low due to a reason the individual is not even aware of. It is best to keep know your credit summary beforehand and flag discrepancies, if any.
It is important to plan in advance while opting for a personal loan. Although it can be a cumbersome process, the Bajaj Finserv Personal Loan available on Finserv MARKETS can be a good option. It comes with minimal processing fees and a basic submission of KYC documents to process the loan amount.
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