Sometimes the very existence of a Personal Loan seems too good to be true. You do not need to secure it against a collateral or state the purpose of use. Hence, it’s perfect for all those times when you are urgently in need of financial aid. But just like you shouldn’t take advantage of a friend who agrees to bail you out in an emergency, you shouldn’t take advantage of liberties afforded by a Personal Loan. For all its advantages, a Personal Loan can spell disaster if you get careless.
So, for all the potential and existing Personal Loan takers, the following practices are a big no no. Once you know what not to do, taking care of your money problems and the loan will be easy-breezy.
- Don’t go easy on the tenure: A Personal Loan does give you the much needed cash to meet unexpected emergencies, but remember that your loan is a debt. You must strive to repay it at the soonest. Why soonest? Because a long tenure spells more interest. You are taking a Personal Loan because you are strapped for cash. Taking a loan for a long tenure and paying more towards interest just defeats the purpose of solving your money problems. So keep your loan tenure as short as you can. Feeling confused about the interest bit of the loan? Well, use a Personal Loan EMI calculator.
- Don’t get crazy with the loan amount: Just because you don’t have to discuss the reasons for taking a Personal Loan with your banker, it doesn’t mean you get greedy. Take only as much as you can afford to repay. Don’t let the devil whisper into your ear and put ideas in your head. Not about the Personal Loan amount at least. Taking loans is a two-way street. You have to repay what you take and a little more on top of it as interest, of course. Taking a loan amount more than you can afford will lead you to straight into a debt trap. People do survive the trap, but after paying a very big price (literally).
- Don’t take too many Personal Loans: Now it might so happen that based on your eligibility, you don’t receive the entire amount you need. Hence, you might be tempted to take more than one Personal Loan. Well, tempting as it may be, you must stop yourself from committing this blunder. Take too many loans, and you will suffocate under a heap of debt. Try tackling your problem with what you have. If it’s really not sufficient then consider borrowing from your family and friends instead.
- Don’t apply for a loan with too many banks: Yes you need the money urgently, and to cover all bases, you might be tempted to apply with multiple banks – a back up plan in case your favourite bank rejects your application. Bad idea. Each time you apply for a loan, the bank concerned will check your Credit Score, and with each check your score will dip a little. Now imagine some five banks checking your Credit Score at the same time. It’ll really take away from your score, which in turn will pose a problem when it comes to getting the loan sanctioned. Though your idea behind applying with various banks might be good, it’ll not really result in anything good for you. So, compare Personal Loans online thoroughly and then apply.
- Do not miss your EMIs: Once a bank helps you with a Personal Loan, it’ll expect timely return payments as well. These are your EMIs. Make sure you do not skip your EMI payments. It will hurt your Credit Score and banks will hesitate to sanction your loans in the future. Keep a reminder and make sure you keep funds aside for the repayment.
- Do not take a loan without comparing: Nowadays there are websites that allow you to compare loan offerings from various banks. So no need to go with the loan option that your neighbour has suggested. Take suggestions, of course, but do your own research as well. Evaluate what’s more important for you – amount, tenure or interest rate? Decide on your loan provider after evaluating these parameters. While you are at it, might as well look at additional features and benefits. Something like a free of charge prepayment option, maybe
- Do not sign on the dotted line without reading the fine print: Often, to reduce the stress of paperwork, bankers will make you sign the documents and fill it up themselves. A bank of repute is unlikely to play tricks after taking your signature, but it’s always wiser to read the fine print before you sign. You might spot some important details regarding your loan that’ll help you plan your repayment better.
- Do not use the loan amount for recreational purposes: The nature of a personal loan is such that you might be tempted to use it for discretionary spending, like shopping, taking a holiday, etc. Though there are no conditions on the use of a Personal Loan, it is commonly advised that you take it for valid financial emergencies.
- Maintain a record: Once your Personal Loan is sanctioned you’ll be given a whole lot of related documents. Keep these documents safely. If at all there is a dispute, these documents will tell your side of the story. Also, once you receive the documents, check the details on them. Make sure there are no typos or other errors that can spell doom for you. What if your loan amount has an extra zero or the interest rate is wrong?
- Do not take a Personal Loan for speculative activities: Now you might get a wicked idea where you decide to take a Personal Loan to invest in the stock market or other speculative activities. Sure you are hoping for rich returns, but what if the tables don’t turn in your favour? Thing will pretty much go downhill from there. If you do want to invest in speculative activities, use money that you’ve put aside just for this, and with which you don’t mind taking a risk rather than using a Personal Loan.
Additional Reading: Everything You Need To Know About Personal Loan Refinancing
So, stay away from these 10 Personal Loan mistakes and you will reap the benefits.