Five most common mistakes while looking for a Personal Loan

Personal loans are amongst the most sought after loan owing to easy availability, faster processing and multiple, flexible options being available. Though, it continues to remains amongst the most expensive loan one can take. Personal loans are taken primarily to meet a temporary cash-flow mismatch, meet an unexpected urgent need of cash; at times of marriages, vacations et cetera. Gullakh suggests paying attention to the following points, Personal loans are amongst the most sought after loan owing to easy availability, faster processing and multiple, flexible options being available. Though, it continues to remains amongst the most expensive loan one can take. Personal loans are taken primarily to meet a temporary cash-flow mismatch, meet an unexpected urgent need of cash; at times of marriages, vacations et cetera. Gullakh suggests paying attention to the following points,

1. Lack of Research:

Personal loans, being the unsecured loan, comes with  the highest rate of interest. Always look for alternatives: Can a Loan-against-Property be taken, or the existing Home Loan can be topped up by certain amount or maybe a Overdraft against the Mutual Fund Investments. Once decided on the loan amount, it is equally important to understand the loan properly. Interest rate is just one parameter, there are Prepayment Penalty, Processing fees and there could be other charges. Use online comparison tools which help you understand the fine print and allow you to compare various products.

2. Lower EMI Trap:

Borrowers tend to go for a lower EMI loan without understanding that lower EMI may mean higher tenure, and thus one ends up paying much more than a shorter term loan. It is advisable to go for an approach which aims to finish off the loan at the earliest as it limits the interest paid, to a minimum. The approach is more effective with Personal loans as it carries higher rate of interest.

3. Understanding your Credit Score:

Risk-based pricing is the way forward in Banking and thus it is important to understand one’s credit worthiness. Free Credit Report  are available and it not only gives the Credit score but also helps to understand the risk profile. This gives the much needed confidence and tools to negotiate oneself much better terms while getting a loan.

4. Multiple Applications:

Every time one applies to a Bank for loan, bank does a Credit Check. These credit checks (enquiries) appear on your credit report. Multiple applications at different banks would appear as too many enquiries very close to each other and are perceived as negative from Bank’s point of view. It lowers the borrower’s chance to get a loan and rate of interest goes higher. So its best to use a Neutral Market Place to search for the best offer and then apply.

5. Read the Fine Print:

Banks put a lot of conditions before sanctioning a loan and its always advisable to read the entire loan document carefully before signing it. The understanding of the loan document allows one to takes precautionary steps and avoid any misunderstanding at a later stage. There are online tools available which allow you to compare even charges in the fine print of the loan documents, across products.

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