October 1, 2022
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apply for a personal loan

Mistakes to avoid when you apply for a personal loan

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In this age of digitalisation, where everything is at our fingertips, financial institutions have made it easier than ever to access funds. Over the years, there has been a surge in demand for instant funds, particularly in major cities such as Kolkata. You can now apply for a personal loan from the comfort of your own home by providing a few basic details. However, a minor error during the application process will result in loan rejection. So, what are these blunders? Let’s find out.

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  1. Not looking at your current finances

Many people apply for a personal loan without first assessing their financial situation. However, this is the most serious mistake they are making. When you apply for this loan, the financial institution does not ask for any security. Because they are unsecured, their interest rates are typically higher than secured loan forms. As a result, you must evaluate your budget and have a repayment plan in place. Ascertain that your income is sufficient to cover the principal outstanding as well as the interest component.

  1. Overborrowing

Always avoid excessive borrowing. There is a chance that the lender will choose you for a pre-approved personal loan. Assume the maximum amount you are eligible for is Rs 5 lakh. Your actual requirement, however, is only Rs 1 lakh. In this case, exceeding your limit will result in a significant amount of interest being paid. To higher recognize this, don’t forget the following example.

Parameters Description Description
Loan amount Rs 5,00,000 Rs 1,00,000
Interest rate 11% 11%
Repayment tenure 5 years 5 years
EMI Rs 10,871 Rs 2,174
Interest payable Rs 1,52,273 Rs 30,455
Total payable Rs 6,52,273 Rs 1,30,455

The table shows that if you overborrow, you will have to pay an additional Rs 1,21,818 in interest payments. Given the situation described above, tell us if it is a wise decision to overborrow. Absolutely not.

  1. Unaware of your credit record

Never commit this mistake when you apply for a personal loan. Remember that your credit report is the most important factor considered when determining your personal loan eligibility. A credit report contains detailed information about your past and current debts. It is used by the lender to determine how previous EMIs were paid, whether there is any loan default on your name, how frequently you applied for a loan, moratorium information, and so on. If the lender detects any negative remarks, you will not be approved for a personal loan in Kolkata.

Apart from that, keep an eye out for discrepancies in your report. There is also a chance that the loan you closed months ago is still listed as an unpaid debt on your credit report. This happens as a result of a technical glitch or because your lender failed to notify the credit bureaus. To resolve this issue, contact the relevant person at your lender’s branch and ask them to send a loan closure report to the bureaus. Clearing previous loan defaults, timely debt repayment, limiting credit card usage, and a few other things can also help improve your credit reports.

  1. Credit hungry behaviour

This is the type of activity that disqualifies you not only from obtaining a personal loan but also from obtaining other loans. But, do you know when this happens? It occurs when you submit multiple loan applications or raise multiple loan queries with different lenders at the same time or in a short period. Let us illustrate this idea with an instance.

Assume you are in the midst of a serious medical emergency. The doctor informs you that the total cost of the treatment will be around Rs 5 lakh. You don’t have enough cash on hand and are looking for a personal loan in Kolkata. In a hurry, you pull out your smartphone and begin applying online with multiple lenders in the hopes that whoever approves your loan first will accept their offer. However, as soon as the lender receives your application, they will request your detailed credit report from the credit bureaus. The request for credit information is commonly referred to as a hard enquiry and is recorded on the credit report. When credit bureaus receive multiple inquiries for your profile, they classify you as a high-risk borrower and label you as credit-hungry. The situation eventually leads to a drop in a credit score.

Thus, no matter how bad your cash crunch situation is, never panic and always avoid the above act.

  1. Not comparing various lenders

Another mistake to avoid is applying without first conducting market research. Because the personal loan market is so large, lenders went to great lengths to attract customers in order to stay in business. They frequently provide discounted offers, pre-approved loans, and loans that waive various important fees.

The interest rate charged by each lender differs, as do the factors they consider when evaluating your application. As a result, it is critical to go to each lender’s personal loan website and review their offers, documentation process, and eligibility criteria. If you are short on time, the best way to complete the evaluation process is to go to a loan aggregator’s website and get a detailed comparison on a single page.

  1. Not having a repayment plan

When you apply for a personal loan, you must pay interest on top of the principal payment. The interest rate is determined by your income, employment stability, credit report, employer status, and other factors. Personal loan rates typically begin at 11% and can exceed 25%. As a result, if you apply blindly without a repayment plan, you risk defaulting on your loan in the future.

Some of the best ways to repay your loan are to use windfall gains, investment payouts, workplace bonuses, and the increment portion of your salary.

  1. Not reviewing your loan agreement

Never skip over the fine print in your loan agreement. It contains information on the interest rate, associated charges, prepayment clauses, and default consequences. Reading the fine print thoroughly will help you determine whether your loan agreement contains any hidden clauses.

To conclude

Applying for a personal mortgage in Kolkata is straightforward. However, obtaining hassle-free approval necessitates special consideration. Never make the above-mentioned error. It will aid in getting an affordable rate.

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