5 Mistakes to Avoid When Getting a Personal Loan

A Personal Loan can help manage your financial situation whenever you need urgent funds. Whether you want to pay medical bills, finance higher studies, or make a big-ticket purchase, a collateral-free Personal Loan gets approved quickly. A decent credit score attracts affordable interest rates with better terms and conditions. However, avoid committing mistakes when applying for a Personal Loan. Let's understand in detail.

1. Opting for a Longer Tenure Than Necessary 

A longer repayment tenure reduces your monthly EMI amount. However, it may result in higher total interest payments over the life of the loan. The longer you take to repay the loan, the higher will be the interest outgo. For instance, if you borrow a 3 Lakh loan at a 19% interest rate, its EMIs and interest outgo will vary for different loan terms as follows: 

You can see, as the tenure increases, the EMI amount decreases, but the interest and total loan cost increase of choosing the longest possible tenure to reduce their EMIs. Eventually, they end up paying more interest. The trick is to use an EMI calculator and choose the shortest possible tenure with budget-friendly EMIs. A shorter term saves money by decreasing your interest outgo. 

2. Grabbing a Loan Without Research 

When you need money in an emergency, you may accept the first loan deal you come across. Comparing the various loan plans available in the market is essential to ensure you get the best deal. For instance, a difference of even a few percentage points on a 3 Lakh loan interest rate can significantly impact the EMIs and the total loan cost. Grabbing a loan with a lower interest rate saves money over the loan term. 

You can view potential offers online in minutes, check their eligibility criteria, and opt for one that suits your repayment capacity. 

3. Not Checking Your Credit Score 

When you apply for a Personal Loan, the lending institution wants to ensure you can repay the borrowed amount with interest on time. That is why they check your employment and income details. However, your creditworthiness influences the terms and conditions of your loan, including the interest rate and repayment options. 

If you plan to get a Personal Loan, check your credit score before applying . If it is low, take the following steps to improve it before applying:

• Clear outstanding balances on loan EMIs and credit card bills

• Reduce your debt-to-income ratio

• Avoid credit card usage to reduce the credit utilisation ratio

• Ask for an increase in your credit limit from your credit card provider

• Find ways to augment your income to manage your finances better

• Review your credit report. If you find any inaccuracies, file a dispute with the credit bureau to help improve your credit score. 

4. Overlooking Additional Charges

Apart from the principal amount and interest charges, you must be prepared to pay some additional charges when borrowing a Personal Loan. 

• Processing Fee: Lenders charge this fee to process your loan application, including the verification and documentation requirements.
  

• Late Payment Fee: You must pay a late payment fee whenever you pay the EMI after the due date.
  

• Prepayment Charges: If you repay the loan before the term ends, the prepayment charges may apply.
  

• EMI Bounce Charges: If you pay the EMI but it does not reach the lender for any reason, you may incur EMI bounce charges. This could happen due to insufficient funds in your bank account or other issues. 

5. Ignoring the Fine Print

After approving your loan, the lender will send you a loan offer. Apart from reviewing the loan details, pay attention to the fine print containing information about the interest calculation, payment methods, fee schedule, due dates, prepayment charges, etc. You must read these fine prints carefully before accepting the loan offer. 

Once you get a Personal Loan, ensure timely repayments to avoid unnecessary consequences. Hero FinCorp provides Personal Loans of up to Rs 5 Lakh without collateral online. Apply for a loan via the website or app to accelerate the loan process and get approval in minutes.