When faced with a cash flow crisis, the first thought that comes to mind is to obtain a loan. Financial institutions nowadays provide quick access to funds at reasonable rates without requiring collateral. Even so, many borrowers end up having their applications rejected or obtaining expensive funds. Here are some common blunders to avoid when applying for a loan.
Not Analysing Your Need
Have you ever been in a situation where your personal loan requirement is only Rs 2,00,000, but you have a pre-approved loan offer of Rs 5,00,000? What would you do in this situation? If you apply for more money than you need, you are making a huge mistake. Since this loan product is available without collateral, the interest rate charged is slightly higher. As a result, you must always consider why you are applying for this loan and how much money is required to meet your needs.
Not Evaluating Your Repayment Potential
Always have a reliable repayment plan, regardless of the loan type and amount. If you apply for any amount blindly, you may have difficulty dealing with multiple circumstances. Meeting household expenses, paying insurance premiums, and paying children’s school fees are just a few examples.
Simply put, do not borrow money that you cannot afford. Use a personal loan EMI calculator with various variables to determine an amount that is well within your budget.
Applying to Numerous Lenders
Did you know that your lender immediately contacts the credit bureau every time you submit a loan application? They do this to learn about your credit history, and the entire process is known as a hard enquiry. Multiple hard enquiries are detrimental to your creditworthiness. The reason is it makes you a hungry borrower, which results in a significant drop in credit score and rejection of your loan application.
Hiding Crucial Details
Fill out the loan application form with caution. Make certain that the details you mention are accurate and complete. Applicants frequently fail to disclose the specifics of their ongoing debt. They do this to fake their debt-to-income ratio to qualify for a larger loan.
However, keep in mind that the financial institution has your credit report on its table. This report contains information about your previous debts, default and settlement cases, and missed EMIs. As a result, concealing any critical information will result in loan rejection.
Opting for Longer Tenure
A longer repayment period makes your EMI more affordable. But is this always a good idea? Perhaps not. The longer the repayment period, the more you will have to pay interest on your loan. Still don’t understand? No worries, just look at the table below.
|1 Year||2 Years||3 Years||4 Years||5 Years|
|Loan Amount||Rs 3,50,000||Rs 3,50,000||Rs 3,50,000||Rs 3,50,000||Rs 3,50,000|
|EMI||Rs 31,261||Rs 16,640||Rs 11,793||Rs 9,390||Rs 7,964|
|Interest Payable||Rs 25,133||Rs 49,351||Rs 74,544||Rs 1,00,702||Rs 1,27,815|
|Total Payable||Rs 3,75,133||Rs 3,99,351||Rs 4,24,544||Rs 4,50,702||Rs 4,77,815|
You can observe the difference in EMI and interest payable for each duration. As a result, if you have a good income and few responsibilities, it is best to close your loan as soon as possible to avoid paying a large amount in interest. On the other hand, a longer repayment is a good choice for those with an average income.
Not Exploring Your Options
Personal loan lenders abound in the market. Whether you apply online or in person, you will have a plethora of options. However, many applicants make the mistake of not weighing their options. Keep in mind that each financial institution has something unique to offer. The maximum loan amount, turnaround time, and approval process all differ.
Not Reviewing Eligibility Criteria
Never submit an application for a personal loan without first reviewing the minimum eligibility criteria. The qualifying criteria differ slightly depending on the lender. Most lenders typically expect you to be at least 21 years old and no older than 58 years old. Similarly, most lenders have a Rs 15,000 monthly income requirement to be approved for this loan.
Not Reading the Fine Print
When your loan application is approved, the lender sends you a soft copy of the loan proposal letter. This letter contains information about the interest rate, the maximum amount you are eligible for, the repayment period, and any associated fees. It also includes information on foreclosure norms and the consequences of late EMI payments. Before you accept the offer, make sure to carefully read every single line. It will assist you in determining whether there are any hidden clauses.
Before you apply for a loan, consider your needs and make a repayment plan. Also, weigh your options and choose a lender with simple eligibility requirements.