6 Common Mistakes to Avoid When Taking a Personal Loan Online
Applying for personal loans online is faster and more convenient today than ever before. You can apply for a personal loan from the comfort of your home and get funds transferred into your account instantly.
This is precisely why many people are hasty and make some common mistakes that can impact their financial health in the future. Applying for personal loans online can be a better alternative than relying on friends and family or depleting your savings, but only if done right.
There are a few key points and a few errors you must remember before applying for a loan. Being aware of these errors can help you get a better offer. Read on to know the 6 most common mistakes borrowers make when applying for personal loans online.
Doing Surface-Level Research
Personal loans are a financial commitment, and doing thorough research on your lender and loan offer is crucial to get the maximum benefits. You may miss out on the important loan details when you have only basic information.
So, read the lender’s terms and conditions properly to avoid getting a personal loan at higher interest rates or facing rejection due to strict eligibility criteria. Moreover, it is essential to check the interest rate, additional charges, repayment options and types of loans available with the lender.
This helps you avoid hidden charges and make a suitable decision aligning with your financial goals. In addition, it is also important to check the credibility of the bank or NBFC to ensure you have borrowed funds from a reliable source.
Applying with a Low Credit Score
Your credit score is one of the most important factors that affect your loan terms when applying for personal loans online. It indicates whether you are a responsible borrower or not, so lenders can offer loan terms accordingly.
Ignoring your credit score can impact your chances of getting a personal loan on favourable terms or may even lead to rejection. Thus, it is ideal to check your credit score and evaluate your credit report periodically.
Most lenders consider a score of 750 or above optimal. If you have a low credit score, you can implement the following measures to boost your score:
- Pay your credit card bills and loan EMIs on time
- Maintain a lower credit utilisation ratio
- Manage a healthy mix of unsecured and secured forms of credit
Ignoring the Impact of Multiple Applications
When you apply for a personal loan online or offline, lenders request a credit report from the credit bureaus. This report contains the details of your credit behaviour and history, which lenders use to assess your creditworthiness. This process is called hard enquiry.
Every hard enquiry affects your credit score negatively, which makes it more difficult for borrowers to get a loan when required. This is why you must avoid applying for credit simultaneously from different lenders.
Alternatively, you should assess your financial requirements and read lenders' terms before applying for a loan. This way, you can avoid unnecessary inquiries.
Applying Without Assessing the Repayment Capacity
With lenders offering competitive interest rates, you may be tempted to apply for more than the required amount. However, if you do not meet the minimum income criteria the lender sets, your chances of rejection increase substantially.
So, maintaining a debt-to-income ratio of 35% or less is ideal when you apply for personal loans online. You may use an EMI calculator to calculate personal loan EMI and assess your repayment capacity.
Simply enter the loan amount you plan to borrow, the tenure and the applicable interest rate to compute your EMIs. Using an EMI calculator also lets you compare various loan offers and select one that best fits your requirements.
Failing to Plan for Timely Repayment
Another important factor of responsible borrowing with personal loans online is to have a repayment plan in place. Paying your EMI amount on time saves you from paying additional charges and late fees.
Furthermore, it also helps you build a better relationship with the lenders, which can help when you avail of future credits. So, before you apply, chart out your repayment plan and see if you can manage it without any issues.
Applying Without Checking the Eligibility Criteria and Documents Required
Lastly, you must always check if you meet the lender’s eligibility terms and have the necessary documentation to get loan approval. Lenders have a valid reason to reject your application if you do not match the required parameters.
This, in turn, can affect your CIBIL score. In addition, applying with incomplete documents can delay your loan application process. The situation can be stressful, especially when you require funds for unforeseen emergencies.
Considering the above points, you can make informed decisions regarding your personal loan to avoid the common pitfalls. In addition, comparing lenders and checking eligibility terms are crucial to avoid rejections on your loan application.
Make sure to apply for loans offering affordable interest rates and calculate the personal loan EMI beforehand to help you easily manage your loan repayment schedule.
