Never before has taking a personal loan been simpler. That salary-earning individual would find it most convenient. A simple click would probably give them access to a pre-approved loan that is instantly transferred to their bank account. However, personal loan facilities come with high-interest rates.
Therefore one must be careful about how he utilizes loans – what one can borrow easily may lead to long-term stress on the individual’s finances.
Personal Loan Tips
Most often, many borrowers make avoidable mistakes that cause them much stress in the long term. Here are six personal loan mistakes that you should avoid to prevent regrets in the future.
- Failing to Compare Loan Offers
One of the most fatal mistakes made by borrowers is taking the very first loan offer. The rates of interest, processing fees, and benefits vary with each bank and NBFC. Some creditors charge no processing fees but have lower rates of interest, while others provide something more, including gift vouchers. You might always have to check with several loan offers to get the most affordable amount that you can save in time. - Misusing Funds From a Personal Loan
This is the most common misuse of easy access to personal loan funds. Most borrowers will utilize the loan amount to buy luxury gadgets, go on impulse buying, or do risky things like gambling or betting, or even trading with the funds borrowed. Personal loans should not be used for unnecessary expenses. Adventures should be planned and saved for, rather than spent during a spur-of-the-moment vacation. - Borrowing Beyond One’s Actual Need
Banks and NBFCs may approve a higher loan amount based on your repayment capacity. However, this does not mean you should go beyond your requirement. A larger loan further increases your EMI burden as well as total interest payable. Borrow only as needed. - Non-payment of EMIs
First, it can lead to a default of EMI payments. Secondly, they are subject to late payment penalties and also affect your credit score negatively. You will forfeit your status as a defaulter, if the amount due to you continues for more than 90 days. This status will remain on your credit report for several years. Therefore, insufficient funds in your account before due dates should be avoided to budget your finances accordingly. - Unnecessarily Extending Loan Tenure
There are instances when borrowers stretch their loans hoping to reduce EMIs. While this might be a temporary relief to them, it increases the overall interest over the lifetime of the loan. Don’t extend your loan term unless you’re genuinely having a cash crisis because you end up paying more interest. Follow the original repayment plan to save interest. - Taking Multiple Personal Loans Simultaneously
Having multiple personal loans for minor needs can easily be chaotic. They could easily spell disaster when balancing so many EMIs with each other. More so, it can affect your finances and completely ruin your budget. Had you previously borrowed money, concentrate on repaying it before planning to take another one.
