Last Updated on
People get attracted to a personal loan due to the ease with which it can be availed. But sometimes, they overlook some important factors that lead to confusion and financial stress later on.
Here are some of the biggest mistakes that people make while availing personal loans. It’s in your best interest to avoid these at all costs:
1) If your money requirement is not essential or critical, you should avoid taking personal loans. These are costly forms of financing. So if you can delay taking loans or take other secured forms of loans (with lower rates), consider doing that.
2) Personal loans are convenient option. More so if you have existing relationship with your bank. But there can be other cheaper options to borrow money like loan against property, top-up home loans etc. So make sure you know all your options.
3) You might be eligible to borrow a lot more than what you need. But you should only borrow lower of what you need and what you are capable of repaying. Ensure that after taking the loan, sum of all your EMIs doesn’t exceed 40% of your take home pay.
4) Longer tenure means lower EMIs. But it comes at the cost of higher total interest payments. If you go for shorter-term personal loans, then you can significantly reduce your total interest outgo over the loan period.
5) A lender might tell you that he can offer you a personal loan at 20%. But is the right? If you have a good repayment history, then you can negotiate for a lower rate of interest. But how will you prove that your credit history is good? You need to know you CIBIL score. So before you apply for personal loan, make sure you know your CIBIL score so that you can better discuss and negotiate with various lenders.