Personal Loan (PL) is can be granted to salaried class as well as the business community. Personal Loan is the easiest and immediate answer to all your financial needs. However, one must note if proper caution is not taken, that though PL might take you out of the immediate financial crisis it might lead you to a financial debt trap. Stated below a top 5 mistakes you must avoid to while availing a PL.
Borrowing beyond your repayment capacity: This is the most common mistake that borrowers make while availing a loan. Borrowers do not take into account their actual monthly household expenditure or it’s a hand to mouth situation. One month there are exigencies you default on paying your EMI and thus fall into a viscous debt trap. Therefore, before you avail a PL check the EMI that you will be required to pay and keep some buffer for emergencies.
Not exploring other possibilities: Personal Loan interest rates are highest among other type of loans available in the market as they are unsecured form of credit i.e. they are not backed by security or mortgage. You must explore other possible type of loans such as loan against property, loan against securities, used car loan, gold loan, education loan etc. which are comparatively lower interest rate products.
Not doing adequate research: Personal Loan in India specially, personally loan for salaried is easily available on your monthly take home salary. You have pre-approved instant personal loan from the bank your salary account is maintained. You should online compare personal loans on an aggregator website based on not only their rate of interest but also processing fees, pre-payment charges, foreclosure charges and other charges etc. as they pay a very important role in costing for the loan.
Applying for loan at too many lenders: Each time you approach a lender for any loan, the lender raises a credit inquiry and its gets reflected in your credit report. For each such credit inquiry your credit score comes down. When many inquiries for a loan is raised in a short span of time, the creditor knows how credit hungry you are and therefore may charge you higher interest rate. Thus, you should apply for personal loan after doing proper research for all the lenders and then apply in one or two.
Not reading the fine print: Ask yourself how often do you read the terms & conditions of any document before signing it? The answer would be never for most of you. If you are signing the document without reading and understanding the agreement you are committing a grave mistake. It is important that you have a knowledge and understanding of all the clauses of the agreement to avoid the risk of being charged unreasonably on a later date.
Over the years across borders of nations PL has come to be known as a financial product that has helped individuals sail through rough seas. However if not taken proper caution while availing for it boat could drown taking you along.