Personal Loan Mistakes That One Must Avoid
Do you dread thinking what might happen if you fall short on cash to fund your vacation abroad or for the wedding you planned? Worse, what if there is a cash emergency in your business? A personal loan is the most obvious choice in such scenarios. In fact, the personal loan is the first instrument of choice among people in need of quick cash.
While contemplating the option there are a few things you must certainly avoid. Here is a quick reference list:
1) Not calculating your EMI before hand
A loan is a huge liability and it is the responsibility of the borrower to service it in time. Calculate your EMI beforehand to avoid defaulting on payments. You can make use of the online personal loan EMI calculator to figure out the EMI you would have to pay every month. Go ahead, only if you feel you can comfortably make the payment for the amount.
2) Opting for a long tenure
The EMI on a longer tenure may look more affordable, but you end up paying a higher interest. So, choose the shortest tenure period that is comfortable for you instead of opting for a longer tenure, just because the option is available with the lender.
3) Borrowing more than you can repay
Applying for a personal loan has become so easy that it can be done with just a swipe and click on your mobile. You may end up committing the mistake of borrowing way more than what you require, which you might eventually find difficult to repay on time.
4) Taking the loan without weighing the options
Comparing loans will help you understand the market as well as locate a lender offering the most competitive terms. Thanks to technology, we can easily compare personal loans. Your decision must not be based on the interest rate alone. Look at the tenure being offered, processing fee prepayment & pre-closure options etc., too as it will help you select the bank that offers you the best terms.
5) Not reading the terms & conditions
How often do you read the fine print when availing a service or buying a product? It is extremely important that you read all the clauses and understand their implications completely. You should be aware of what you are getting into to avoid unpleasant surprises in future.
6) Not exploring a secured loan option
Easy availability of personal loan does not make it the best solution for all your needs. It is a known fact that personal loans are an expensive option being unsecured in nature. Instead of taking a personal loan if you explore other options like availing loan against FD or overdrafts on your savings account, it may likely reduce your burden.
7) Taking more than one personal loan
Borrowers make it a matter of routine to service more than one personal loan at a time, in spite of availability of other options to raise money. This can not only damage your finances and savings, but can also affect your credit score.
The popularity of personal loans can be attributed to factors like speed and convenience. They require no collaterals or guarantor; fewer documents compared to other loans and are sanctioned in as little as 24 hours. They are helpful to ride over financial hardships. But they are a costly form of finance and you must observe caution when applying for one, to make it work to your advantage.
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