Personal loans are useful during emergencies, when you face a financial crunch. With the easy availability of such loans, hassle-free application processes, and low interest rates, more and more people are currently availing these loans. Inexperience when applying for loans can, however, lead to mistakes which may lead to your loan applications getting rejected.
Here are some common mistakes which you can avoid and know how to apply for a personal loan correctly.
Mistake 1: Overestimating Loan Repayment Capacity
Whenever you apply for such advances, you must keep in mind the personal loan interest rates. These rates determine how much you have to pay as EMIs. If you do not consider your repayment capability, you may have to spend a majority of your income repaying your loan once the funds from it are utilised. Make proper use of tools such as online EMI calculators to determine the EMI amount before applying.
Ideally, not more than 30% of your income should be spent on loan repayments. That way, you can enjoy a decent standard of life while also not defaulting on payments.
Mistake 2: Applying to Multiple Lenders Simultaneously
It is possible that you may be desperately short on funds and need a loan immediately.
But never apply for multiple loans from different lenders simultaneously. Whenever you apply for multiple personal loans, your preferred bank or NBFC initiates what is known as a ‘hard enquiry.’ Such an enquiry is an exchange of information among lending institutions and credit report bureaus on whether you have made similar applications to multiple lenders.
If you have applied to many financial institutions, a hard enquiry will follow and immediately decrease your credit rating. Your personal loan interest rates may increase and you may be tagged as a ‘credit-hungry’ borrower.
When you apply for a loan from leading NBFCs, your chances of rejection is minimal if you maintain a high credit score. They offer loans with easy EMIs and flexible repayment tenors to borrowers with a credit score around or above 750.
3: Not Doing Enough Research on Options Available
Personal loans are available from various lending institutions. The features and benefits of every personal loan differ with every lender. It is always advisable to thoroughly understand all loan terms before you make a choice. There are a lot of sites which offer parallel comparisons of various loans offered by financial institutions and NBFCs. So, it is important to carry out proper research before deciding on a lender.
Mistake 4: Not Disclosing Previous Debt Details
All lending institutions consider your credit history before they provide you with a loan. Your lender must be clear about all your debts and obligations. If you hide important details from your preferred lender, it might lead to rejection of your loan application. Be open about your existing debts and do not hide any detail.
Mistake 5: Availing Loans with Very Long Tenors
Having a lengthy loan tenor has both advantages and disadvantages. On one hand, you need to pay lower instalments every month if your tenor is long. But, with longer tenors, total interest paid on the loan increases. For example, if you borrow Rs. 1 Lakh at 14% interest for 3 years, you will need to pay a certain sum as EMIs. If you increase the loan tenor to 5 years, EMIs will come down, but the total interest accumulated throughout the 5 years tenor is more than that of the previous case.
Mistake 6: Not Checking Credit Score Before you Apply for a Loan
Try and maintain a CIBIL score of 750 and above to be categorised as a creditworthy borrower. This score is part of your personal loan eligibility criteria and you should check it before applying. If you have a lower credit score, your application may be rejected.
Conversely, a high CIBIL score will mean a higher credit score and you can avail loans of higher amounts.
Personal loans constitute the majority of all loans disbursed every year in India. Choose your personal loan lender wisely and make an informed decision to avail a loan with the most convenient terms and features