There are instances when borrowing money is the only option and there is nothing wrong with that. However, making such decisions randomly or in a rush may be a bad idea. Before you apply for a loan, you need to consider various factors in order to make the right choice. Before you start applying, it’s essential to understand both: what actions should be taken and which mistakes must be avoided.
When we talk about mistakes to avoid when applying for a loan, it’s not about an error in the application form. Those mistakes can be edited. Here, we are talking about bigger financial mistakes, i.e. the ones that can impact your financial health if not avoided. Some of the common mistakes made by loan seekers are listed below:
1. Overlooking The Eligibility Requirements
Every lender has some sort of eligibility criteria associated with its products and services, including a loan. Checking these eligibility requirements is one of the most important steps to take when applying for a loan. This may include age, income requirements, credit score, citizenship, etc.
Before you apply for a loan from any bank or NBFC (Non-Banking Financial Company), make sure you check for all these factors in the eligibility criteria. Even if you don’t fit just one of these requirements, there is a high chance that your loan application will be rejected.
For example, let’s suppose the required eligibility criteria include 21 years of age, an annual income of at least Rs. 5 lakhs, and a credit score above 750. Now, if you fulfill the first two requirements, but your credit score is 650, your application will most likely be rejected.
Therefore, it is better to apply only if you fulfill the required eligibility criteria. Applying unnecessarily without checking these basic requirements with not only waste your time but might also result in a negative impact on your credit score.
2. Applying Even When You Have a Low Credit Score
If you are looking for a loan, you are most probably aware of the significance of your credit score. Since personal loans are unsecured loans, your credit score plays a crucial role in determining whether your loan application will be approved or rejected.
The higher your credit score, the higher the chances of approval. Large-sized banks and NBFCs usually have strict credit score requirements. If you do not have a credit score above 750, your application will most likely be rejected by large banks or financial companies.
Therefore, it is recommended that you first build your credit score using secured credit cards or short-term loan apps like FatakPay. Avoid applying for bigger loans if you have a low credit score and focus on increasing it first.
3. Lack of Proper Research
Another common mistake that many loan seekers make is to go for the first offer they receive. It is not a good idea to choose your lender without doing proper research. Conduct thorough research to identify relevant lenders that can fulfill your loan requirements.
Once you have a list of some top lenders, you can compare them based on their interest rates, customer reviews, complexity of application processes, and other factors.
This research will take some time and effort but might save you hundreds or even thousands of rupees. If you blindly go for the first loan offer without exploring other options, you might end up paying unnecessary charges and high interest rates. Your final decision should always come out of thorough research and strategy.
4. Not Considering Your Repayment Capacity
You have the freedom to choose the loan amount as per your requirements. But always remember that you also need to repay the loan. If you just borrow an amount without considering your repayment capacity, you might end up finding yourself in excessive debt.
Even if you are going for a bigger amount, choose the repayment tenure wisely. Everyone wants to close the loan sooner and so would you. Keep your monthly budget and affordability in mind when selecting EMI (Equated Monthly Installments) for loan repayment.
For example, suppose you have a monthly salary of Rs. 40,000. Out of this, you have to pay an ongoing EMI of Rs. 10,000 and your personal expenses are nearly Rs. 15,000. Now, you are left with just Rs. 15,000 and you can’t just pay all of it in another loan EMI. You must have some emergency fund. Therefore, your repayment capacity in this scenario is less than Rs. 10,000.
You might have to pay a bit extra interest with longer tenures, but it will keep you financially stable. If the EMI amount goes beyond your monthly budget, you may not pay it and end up getting extra charges imposed on your loan account. Not only this but your credit score will also be impacted negatively.
5. Applying For Too Many Loans at a Time
Applying for too many loans at a time means showing lenders how desperate you are to get some money. This is not good for your credit profile. When you apply for multiple loans simultaneously, it leads to multiple hard inquiries on your credit profile at the same time.
Hard inquiries refer to the checks done by lenders on your credit profile. Multiple hard inquiries within a short time period can have a negative impact on your credit score. This can further become a reason for the rejection of your loan application. Therefore, instead of randomly applying for a loan in every single bank and NBFC you come across, try to find out which lenders are more likely to approve your application and apply accordingly.
If you are at the initial stage of building your credit history, you can go for short-term loan apps that have basic eligibility requirements. At FatakPay, even those with low monthly income can apply for a monthly credit line and personal loan.
6. Not Checking The Fees & Charges
Another common mistake that many individuals make is to just look at the interest rate, overlooking other charges associated with a lender. Apart from the interest rate, there can be several other fees and charges associated with a loan.
Before you apply for a loan, make sure to check the complete terms and conditions as well as the fees and charges associated with it. For example, look for the processing fee, late payment fee, loan pre-closure charges, interest rates, and others (if any). These fees and charges should be important factors that you consider when choosing a lender for your loan.
Summing Up
Today, there are hundreds of lenders, including banks and NBFCs, offering personal loans in the market. However, not all lenders can be suitable for every individual who is looking for a loan. When applying for a instant personal loan, you must keep all the above-mentioned points in mind. Try to avoid these mistakes to secure your financial health.
If you have no prior credit history and you are looking for smaller loans, you can consider FatakPay, which is a short-term loan app targeted at low-income groups and individuals who are seeking short-term loans to manage their monthly expenses. Even with a low or no credit score, you may get approved for a credit line at FatakPay and further for a short-term personal loan if you maintain a good payment history.
