So your personal loan is approved. You are elated with the fact that you are finally approved of a loan, that too without collateral! Although this might be to meet some immediate requirements, there are certain cases where a personal loan should not be used. Here are a few circumstances where you should NEVER think of using a personal loan:
Taking a personal loan without comparing loan offers/
A golden rule when taking a personal loan is that you should never settle for the first offer. With so many personal loans available, it is important to compare your offers before you finalize a lender. This will help you know more about the current interest rates and give you the power of negotiation to get the best personal loan offer.
Applying at too many institutions simultaneously
If you are applying for a personal loan, it means you are in need of money. However, how it is not a great idea to let lenders know how much you are in need of a personal loan. One of the ways lenders know about this is if you apply at too many institutions simultaneously. This means if
Ignoring the rate of interest
The interest rate is the prime cost borne by a borrower when taking a personal loan. Therefore, it is never recommended to ignore the rate of interest. The interest rate of a personal loan depends on various factors – credit score, monthly income, etc. Please note having a good credit score gives you the power to negotiate on the interest rates proposed to you.
Going easy on loan tenure
The tenure of your personal loan also plays an important role. It is recommended to keep your loan tenure as minimum as possible. Having a loan tenure can feel tempting but in the process, you might end up paying more than what you actually borrowed.
Using the money for illegal purposes
The best part of a personal loan is that it can be used for multiple purposes. This means you can use the amount for any personal use. However, there are certain cases where you can’t use a personal loan and if used can be illegal. Taking a personal loan for gambling is a prime example.
Borrowing more than you can pay back
You are eligible for a loan of ₹1 lakh but you only need ₹50,000. Getting that extra ₹50,000 can make you borrow more, but DONT. Only borrow whatever is needed by you. This means you must keep in mind of your budget when borrowing and see whether you can repay the amount taken.
Applying on behalf of someone with a poor credit score
We must help our friends and family members in times of need. However, that does not mean to put yourself in jeopardy. When you apply for a personal loan on behalf of someone, especially for someone with a poor credit score, it is important to be sure that the personal loan will be repaid by him/her on time.
Taking multiple personal loans
Just because you are eligible to take multiple personal loans does not mean you should take all of them. Multiple personal loans can probably make you fall in a debt trap and that is not good for your financial well-being. Keep your budget in mind and see if you can take the burden of multiple loans. Never forget a loan is a debt and must be repaid.
Signing the agreement without reading carefully
Nobody likes paperwork. And because of this we often sign the agreement without reading it carefully. Although if you take a personal loan from a well-established lender, the chances to get duped are less. However, it is always advisable to read the fine print before you sign it. This can help you in planning your repayment in a better way.
Missing your EMI’s
This is a no brainer. Never ever miss your EMIs and pay it on time. A default in EMI payment can affect your credit score adversely and reduce your future loan possibilities. In fact, even a single default in payment can drop your score by 30 points. If you are someone who forgets about his/her EMIs, you can set up a reminder.
So, there you go! Keep in mind these 10 points and you shall never make a mistake in your financial life.
