Loans are one of the go-to solutions when a substantial amount of money is required. If you use it correctly, it can be an invaluable financial tool.
When it comes to loans, banks nowadays offer a wide range of options like home loans, car loans, consumer electronics loans, and so on. The personal loan is one among them that is more popular than the rest, thanks to its flexibility. Unlike other loans, the personal loan is not restricted to specific uses. Once it’s disbursed, you can use that amount for pretty much everything. It’s an unsecured loan; meaning no collaterals are required, which adds to the reasons why it appears to be a better choice. However, if in oblivion, it can trap you in a vicious debt cycle.
So if you’re planning to take out a loan, or have already faced many loan rejections, there are a few things you bear in mind to make the most out of this financial tool without taking any miscalculations.
No Clarity On ‘Why’
First be clear about what is the exact purpose of the money. Is it for debt consolidation, travel, or any other emergencies? Not knowing the purpose can make you mishandle or overspend the money and be in debt before you know it.
How to avoid them:
Always be clear about what you want to do with the money. That way, you can delegate the money properly without overspending it. You can also choose the right type of loan according to your requirements.
Neglecting Credit Score
Since there are no collaterals required for a personal loan, credit score is one of the most important variables that will determine whether you’re eligible for the loan or not. Having a poor credit score means, either you won’t get the loan or even if you manage to get one, you’ll have to pay a higher interest rate than many.
How to avoid them:
Maintain a healthy credit score. Never slack on paying back any of your loans. Prompt loan payment is essential to maintain your credit score at a desirable level. If you maintain a good credit score, you’ll be eligible for higher amounts of loans with very low-interest rates.
Being ‘Credit Hungry’
Credit hungry is the term used to describe one who applies for credit at every bank or every loan app they find. Each time you apply for a loan your credit score will go down, but it will grow back once you start paying the money promptly. But applying for too much credit and getting rejected will significantly reduce your credit score and you’ll be labeled as a ‘credit hungry’ customer.
How to avoid them:
Improve your credit score by paying your credits promptly. If you face rejection, don’t go applying to multiple sources of credit, desperately. If you want to take out a loan, wait until your credit score is at the desired level.
Carelessing on The Fine Print
When the times are desperate you may rush through the whole process without properly going through the terms & conditions of the loan. This may cause you to face hidden costs like repayment penalties, origination fees, or other penalties.
How to avoid them:
Thoroughly read the T&C. Make sure there are no hidden costs. Know about the penalties. Ask thousands of questions to the lender. Be well informed about their policies before you step foot.
Borrowing More Than What You Need
You may be eligible for more credit than your actual needs. And it might be tempting to take that whole. But you may end up overspending or paying higher interest rates.
How to avoid them:
Make a budget based on your present needs. Proceed with only the amount that is truly necessary or urgent.
Choosing Longer Tenure for Lower Monthly Payments
If you choose the longer tenure you’ll only have to pay a lesser amount each month. However, compared to the short term, you will ultimately pay a lot more interest over time.
How to avoid them:
Assess the loan terms and your financial situation carefully, and choose the shortest term that your income will allow.
Not Having a Proper Repayment Plan
If you don’t have a proper plan on repaying the loan, you might find yourself in financial stress with significant debt and a poor credit score.
How to avoid them:
Always plan ahead. Budget ahead properly by keeping the loan terms in your mind. Make sure the interest you’re committing to comes inside your financial status.
Not Doing Research On Lenders
Each lender is unique. They have different sets of policies, tenure, terms and conditions, etc. There might be fraudulent ones also. Lack of proper research on lenders can make you land in unfavorable loan terms such as higher interest rates.
How to avoid them:
Do your research. Enlighten yourself with policies, terms and conditions, interest rates, tenure, etc. of multiple banks or lenders. Compare each other. Find the one that aligns with your financial status.
Now applying for personal loans is easier than you think. Karnataka Bank’s KBL Xpress Cash Loan is the personal loan they provide, which is a paperless digital process that ensures instant disbursal of money, rest assured. Since many banks now provide online application portals, you can now avail easy personal loans.