Personal loans are unsecured loans. Another important feature of these loans is that they are not for a specific purpose as education or home loans are.
Here are some mistakes that you should avoid for personal loans:
The first question you need to ask yourself is: Do I really need that loan? Just because you got a mail or a call about a low interest personal loan does not necessarily mean it's a good time to buy the latest LED. Remember there are no free lunches. So think hard about the loan's utility and necessity.Remember pre-paying a personal loan has a penalty.
Agreed personal loans are available for any reason and unlike auto and home loans they are not sanctioned as a fixed percentage of the asset. The limiting factor here is your income and CIBIL score. However, beyond the numbers you need to be aware of other limitations as well. For instance, you will have to keep in mind unforeseen expenses that might create a liquidity crunch, such as expenditure related to your child's admission in a new school. Your income eligibility criteria or CIBIL Score will not include such information so be realistic about how much EMI you can pay every month and then apply for the loan. Use our online EMI calculator to assess your repayment capacity.
Ideally one should disclose and share details of all existing loans that are being serviced when applying for a new loan. One may get sanctioned a higher loan amount by hiding such details but ultimately this will only end up stretching your monthly budget when you start paying off the loan.
In your trust and haste, you can miss out on reading and understanding the fine print that mentions such details as processing charges, prepayment penalty and any other hidden charges. Once the agreement is signed you do not get to plead ignorance.
Choosing the loan tenure must be done with great care. The loan tenure decides your monthly EMI and the total interest you end up paying. A longer loan tenure will translate into a lower EMI but a bigger interest burden overall. On the other hand, if you choose shorter loan duration then you might find yourself saddled with monthly installments that are difficult to pay.
One should read the fine print and understand the various terms and conditions of a personal loan before signing any legally binding document including a personal loan agreement.Compare on other factors also: processing fees, pre-closure clause and ease of documentation etc. Use our Comparison Tool to find the right lender before making a decision.
Before taking a loan, you should discuss this with your family as the EMI payouts will impact your monthly budget. Ideally one should also review the reason for taking the personal loan with family members. Your spouse or another family can suggest other options (such as personal savings/gold loan etc.) to meet immediate cash requirements rather than applying for a personal loan.
Before applying, check with the FI (you are applying to) whether online or by visiting their branch office, what are their specific requirements? If you do not meet their eligibility criteria whether it is on the income parameter or the CIBIL score or due to documentation, it is sensible not to apply for a loan to them. This way you will end up saving time and processing charges which you would otherwise lose if the application is rejected.