A personal loan is an unsecured loan. You can use the loan to meet any financial requirements you may have. It is one of the most popular funding tools with relaxed eligibility criteria. However, to apply for personal loans, you need to adhere to certain criteria for easy approval and maximum funds you can get. There are few mistakes that you should never commit when applying for this type of loan. While it is possible to research on the requirements of a personal loan, you may miss some crucial considerations or things not to do, but we list it out all here for you.
Features of Personal Loans
Below mentioned are some of the features of a personal loan:
- This loan is given to fund personal expenses such as wedding, home renovation, medical treatment, holiday trip, etc. There is no restriction on how you use the funds.
- Minimum amount and maximum amount that can be availed is Rs. 1 lakhs and Rs. 20 lakhs, respectively.
- No security or collateral is needed against the funds.
- Employment is one of the major factors for the approval of the loan.
- A credit score of 750+ helps in getting easy personal loans.
- Not Comparing Personal Loan Offers: If you are interested in taking a personal loan, you would probably look for offers from your current bank. After all, you already have an established relationship with it. However, if you fail to look beyond the first choice of bank or NBFC, then it can be a terrible mistake. It is possible that other lenders could offer better rate of interest or favourable terms than the bank you are already a customer of, and thus, it is crucial to never settle for the first choice you make. Always compare offers from financial institutions, study the terms and details before finalizing on a personal loan offer and provider.
- Avoiding the Aspect of Credit Score: For unsecured loans like personal loans, financial institutions will take into account the borrower’s credit score. Based on the financial behaviour, especially repayments and EMIs, a credit rating is given to the loan applicant. If the credit score criterion is not fulfilled, the loan application could be rejected. Thus, when applying for a personal loan, you must check if you meet the credit score requirement. If you do not have the needed credit score, it will be difficult to get the personal loan, or even if you get one, it would be at a higher rate of interest.
- Ignoring the Eligibility Criteria: If you do not fulfil the eligibility criteria for a personal loan, then the loan will be rejected. Thus, it is important to check with the loan provider about the loan eligibility criteria. The criteria could be specifically about the minimum and maximum age requirement, type of profession, existing liabilities, identity and residence proof, monthly income necessary, credit score, documents needed, financial proof, ITR copy etc. It is advisable that you apply for the loan with a provider, whose eligibility criteria you can easily comply with.
- False Details in Loan Application: When filling the personal loan application, you should provide accurate and true details. Lying is one thing you should never do when applying for a loan, even if it is as minor as saying you have a full-time job, but it is actually a part-time affair. Even if you are worried that the application would be rejected, do not put out incorrect details in the application form.
You can be prosecuted if an action is taken against false claims you made when you applied for the funds. The penal action can include jail time. So just be truthful about every detail asked.
- Overlooking Fees and Charges: When you compare banks and NBFCs, do not just compare the personal loan interest rate to finalize a good deal. You have to compare other costs, such as prepayment charges, processing fee, penalties on foreclose etc. Some financial institutions can waive off processing fees to attract customers, while others demand at least up to 2 percent of the loan amount. Few institutions can charge higher than 2 percent of the loan amount. If you are not aware of these costs, then you can end up with a loan that costs more than you expected.
- Unwise Debt Consolidation: While personal loans are great means to consolidate debt (pay off multiple debts by taking a single loan), it could harm your financial situation, if you consider debt consolidation without taking necessary precautions. For instance, if the majority of pending debts are more expensive than the new personal loan, then you could be in a worse financial fix.
Personal loans are taken to consolidate those debts that are usually more expensive than the new loan taken to repay unpaid bills and EMIs. If you keep your spending habit easy and do not try to restrict unwanted expenses, then it would be harder to repay the personal loan, even if your other debts stand paid-off.
Keep in mind the above-mentioned mistakes that you need to avoid when applying for a personal loan.
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