While the process of availing a personal loan is simple now, especially with the personal loan apply online option, there are some things you need to keep in mind. A personal loan, like all other debt, is a long-term and significant financial obligation and you need to ensure you are taking all the right steps to ensure that this is a financially prudent decision. Here are some expert-recommended tips on things to avoid when availing a personal loan:
Being unaware of your credit score
One of the primary things that a bank assesses when going through your personal loan application is your creditworthiness. This tells the bank of your credit history and how reliable you have been in paying back your dues in the past. If you have a low credit score, chances are your personal loan application will be rejected. Even if you get approved for a personal loan, the interest rate will be a lot higher. Hence, it’s crucial that before you apply for a personal loan, you check your credit score. If it is lower than the ideal credit score range, you can take steps to improve it before you apply for a personal loan.
Not having a repayment plan
When you take a personal loan, you have to pay it back along with the interest through Equated Monthly Instalments (EMIs) over the tenure of the loan. It’s important to consider your loan affordability and have a repayment plan in place when availing a personal loan. You can use a personal loan EMI calculator to ascertain the EMI estimate and see how that fits into your monthly budget and whether you can comfortably manage that with all your other expenses. Using a personal loan EMI calculator will help you determine what amount of loan can you afford and what tenure you should opt for.
Considering the lowest interest rate
When you check the personal loan interest rate on the website of banks and other financial institutions, the interest rate advertised there is the lowest applicable personal loan interest rate but that does not mean you will get that rate. When it comes to personal loans, the interest rate range is high – usually 8% to upwards of 24%. The personal loan interest rate that you get approved for depends on factors such as your income, age, creditworthiness, employment history, etc. Hence, you should use a personal loan eligibility calculator which inputs such data and gives you a personal loan interest rate estimate that’s closer to your financial profile.
Other than these three important pointers, experts also recommend doing your research and comparing your options. Often, your bank will offer you a pre-approved loan. You shouldn’t simply opt for it. While the loan process and disbursal will be quicker in that case, you need to consider other lenders and see who is offering you the best personal loan interest rate and terms.
