Common mistakes to be avoided in taking personal loan
Read this article to know what not to do to avoid falling into the trap of Personal loans. Read the do’s and don’ts for Personal loans and the questions you need to ask yourself before applying for a personal loan.
Personal loans fulfill your immediate needs like home renovation, education, expenses on medical emergency, etc. However, myriad of options is available in the market, and to choose the perfect loan option can be a herculean task for you.
There are some pitfalls that you need to avoid to ensure that you don't fall in the debt trap.
A personal loan is borrowed to meet any unforeseen events and is granted on the basis of a credit score, reputation, his ability to pay and integrity.
Most personal loans are proffered as an unsecured loan; hence there is a slim chance of obtaining collateral with the loan. It is the underlying reason why personal loan tends to be more expensive as compared to other loan types.
If you are trying to explore personal loan, as an option, you need to ask yourself following questions.
Is the expense necessary or can it be avoided?
Is the expense seeks attention in the present time or can it be postponed for the future times to come?
Do you really need a loan or can you compromise with the present cash flow?
Can you seek other alternatives like borrowing from friends, relatives or other sources?
Here are some mistakes that you need to avoid before taking a personal loan
Integrity pays off- an average Joe like you, can apply for the loan, provided you have a good credit record. Beware of your credit worthiness, and try to maintain a proper record of assets and liabilities.
Don't mislead the banks with wrong information, as they take a wrong information very seriously. Any missed payments in the past should not be hidden; otherwise they may dispose of your application.
Research about Lender - It is a most common mistake that anyone can make. Obtaining a loan without researching options, it pays you off in the long run. Do comparison of charges, clauses, pre payment fines and penalties.
Never sign blank documents - Make a wise choice to read offer document before signing. Most of the times, banks send their executives to sign on the documentation process. So, don't leave the blank application to be filled by executives. Familiarize yourself with what is being offered and what is being delivered to you.
Read the loan agreement very carefully and do read the interest rate clause. Banks generally do not encourage loan pre payments in the initial period, and they will charge exorbitant interest rates from you.EMI of a personal loan
Choose an EMI that can be easily managed - Choose an EMI that is well within your budget as any wrong decision can lead to dire consequences. A personal loan with small tenure works in a better fashion as compared to loan with lower EMI and long tenure.
However, ensure that everything is well within your budget.
Maintain statement and accurate records
It is essential to maintain records of loan disbursement and payments. The details like negotiated interest, processing fees, waivers, etc should be kept handy, as sometimes bank charge additional fees for statements and agreement copies.
A personal loan immediately addresses and fulfills present cash flow needs; it is quite advantageous for common people. But at the same time due to exorbitant rate of interest quoted by lenders, it is best to avoid these loans.
Also, apart from personal loan various other loans are available in the market like fixed deposit, gold loan, shares, etc. It is quintessential to weigh all your options before making a decision.
Hope this advice proves useful and you are able to manage your personal finances well. Some people call personal loan by the name of artificial pump. Artificial pumps can never boost our economy.