Due to the collateral-free availability and minimum documentation, personal loans have become one of the most popular funding options. According to a recent survey, the volume of origination in the personal loan category grew by almost 134% year on year for 2019.
Attractive features of the advance, such as no end-use restriction and digital application procedure, have only encouraged individuals to opt for quick personal loans for their funding needs.
However, there are some common mistakes that applicants make while availing of personal loans, which can lead to reduced chances of approval or minimised benefits. Therefore, they should know about these mistakes before applying for a quick personal loan.
5 mistakes to avoid when availing quick personal loans
- Not researching on lender options –
One of the remarkable mistakes that borrowers make is not researching thoroughly about interest rates and service terms on personal loans offered by various lenders. A lack of information regarding lender offers can result in individuals settling for high interest rates.
Contrarily, researching and comparing different lenders will enable borrowers to find out about affordable interest rates and keep their repayment liability in check.
- Not checking the eligibility requirements –
Not going through the eligibility criteria before opting for a quick personal loan is another mistake that borrowers make. Not checking the criteria leaves a room for an applicant missing out on specific eligibility requirements, like age, credit score or income as per their city of residence. It can thus invite application rejection on such basis, also hurting one’s creditworthiness.
Thus, before applying for an instant personal loan, one must always go through the eligibility criteria to make sure that they satisfy the requirements.
The essential eligibility criteria that every personal loan applicant must meet include –
- CIBIL score of 750 or above.
- Residing citizen of India.
- Age between 23 and 55 years.
- Salaried employee working with an MNC, a public or private firm.
- Minimum income as per the city of residence.
- Not assessing their repayment capacity –
Another common mistake made by borrowers is not assessing or overestimating their capability to repay the quick personal loan. It is a common mistake which one should avoid making to improve their chances of loan approval.
Also, applying for a loan amount beyond one’s repayment capacity can lead to a default in loan repayments, which can severely hurt their credit profile.
Before applying for a personal loan, borrowers should thus always calculate their FOIR or fixed obligation to income ratio, which should ideally be less than 50%. It is the percentage of their monthly income that goes towards repaying their existing debts. They can also utilise an EMI calculator to assess instalment suitability.
- Not checking credit report –
Lenders place a credit report enquiry of an applicant when he or she applies for a loan to ascertain his or her credit behaviour.
An individual’s credit report is created based on his/her credit history. It carries details regarding the past and current credits, defaults, repayment history, credit mix availed, and such parameters.
Also, the credit score, one of the essential eligibility criteria for a personal loan, is created based on this report. Not checking the credit report before opting for a loan leaves room for errors or omissions that can hurt the applicant’s profile. Therefore, one must make sure to run a check on their report and take steps for rectification if required.
Individuals should also know the things they can do to improve their personal credit scores so that they can take essential measures within time.
- Not checking the associated fees
Lending institutions levy several fees on borrowers such as processing fees, penal interest, document charges etc. when they opt for a personal loan. These fees can increase the total cost of the loan. Hence, borrowers should know everything about the fees and charges applicable to their personal loan.
Apart from these, one should also look for pre-approved offers on personal loans provided by financial institutions like Bajaj Finserv for hassle-free loan processing. Such offers are also valid on other credits options like credit cards and business loans. You can check your pre-approved offer by entering your name and contact information.
Borrowers should also know the personal loan application procedure and the documents required during such application to streamline advance processing. Note that not submitting proper documents can also lead to rejection of the loan application.