Personal Loans are your financial saviours in times of an emergency, in case you don’t have an emergency fund to come to your rescue. With the quick processing that many lenders offer on Personal Loans, the documentation that’s a breeze and more reasons, a Personal Loan is a rather popular financial product to choose.
Check This: Introducing Paperless Personal Loans
Do you need more reasons to get a Personal Loan? We can give you two. If you are looking to get a Personal Loan, you will find this good news. You don’t need to pledge any collateral to get that loan.
But wait. Getting a Personal Loan is not really a cakewalk. While we are not denying that the process is easy, there are a few criteria that need to be fulfilled.
Many times, we find our loan applications rejected or faced with a few hurdles. Many Personal Loan applicants make a few blunders when they consider applying for a Personal Loan.
Let us tell you about seven Personal Loan pitfalls so that you can sidestep them.
Have you reviewed your Credit Report?
So, you are thinking of applying for a Personal Loan. Be sure to do your research and homework before you seal that application by submitting it. Give your Credit Report a quick glance to see whether you are actually on safe turf for that loan application.
If you think there may be something in your Credit Report that could hinder your application, stop. Back up there. Get the errors fixed before you submit your loan application. Review your report to confirm that all your cleared debts are actually reflecting as cleared. It sometimes happens that credit bureaus are slow to update the current status of a person’s loans and other debts, even if they have been cleared a few months previously.
Ignoring repayment capacity
The common idea behind getting a Personal Loan is for applicants to hoard the money. This hoarder’s mentality simply does not prove wise when a Personal Loan is involved. One of the most important aspects related to borrowing that everyone must give careful thought to is their repayment capacity. Ask yourself this: how much can you comfortably afford to repay without having to drastically tighten the purse strings?
Here is a tip you can thank us for later. Don’t get greedy with a Personal Loan. Heard the popular adage, “Don’t bite off more than you can chew”? It stands true even for financial products like a Personal Loan.
Submitted one loan application too many?
Did you know the banks keep tabs on how many times you submit applications for Personal Loans or other financial products? Don’t be too spontaneous and apply for loans in several banks simultaneously. Do the homework and shortlist maybe the top three lenders and then finally zero in on one for the loan.
Asking for too many loans in a short period of time will negatively impact your Credit Score. This will mean loan rejection for very frivolous reasons. Simply put, being credit hungry is not a good idea.
Not seeing the variety in offers
Think only a Personal Loan is the answer to your financial woes? Wait. There are many other fish in the sea. This only means that you have a wide variety of financial products available.
One factor that should motivate you to reconsider is the high interest rates charged on Personal Loans. Since Personal Loans are primarily unsecured loans, they can come with interest rates that are higher than other financial products. Personal Loans can have an interest rate of up to 24%.
Additional Reading: Common Personal Loan Myths Busted
Scout out the best deal
It’s not a good idea to jump at the first Personal Loan offer you find. Do some research and look around for the best deals. You might find a lender with a lower interest rate. Remember, different banks may offer varying interest rates and charges for the same loan amount and Credit Score.
Must Read: Four Golden Rules Of Personal Loan Repayment
Hiding your existing debts
Plain and simple. This is not a good habit. Don’t be secretive about your current debts and financial liabilities. It is rather common for many applicants to understate their present debts in the hope of getting a larger loan amount sanctioned. That tactic is bound to fail because all banks and lenders will scrutinise your credit report before approving your loan application. Here’s a word of caution. Wilfully withholding your debt information will probably lead to your application getting rejected.
Read This: 4 ‘I’s To Avoid Personal Loan Rejection
A Personal Loan to make investments
Have you heard of a debt trap? Do you really think it’s wise to take on a debt for investment purposes? A Personal Loan is a high-interest financial liability and you will be well-advised not to use the money from a Personal Loan to begin or add to your investments. Bad idea.
For a Personal Loan used to make investments, the rate of returns must ideally be higher than the interest rate on your loan. The markets are unpredictable and this cannot be guaranteed.
Additional Reading: Your Guide To Investing In The Stock Markets
You should treat a Personal Loan as a last resort to rescue you from a financial crisis, primarily because of the high interest rates associated with Personal Loan. They are, however, very conveniently available if you want money at short notice.
Check This: Personal Loan Handbook: All Questions Answered