A personal loan is an unsecured credit which can be used for any kind of emergency expenses. It is one of the most popular forms of credit, primarily because it does not require collateral and also there are no restrictions in terms of its usage. A borrower can use the loan amount to meet any kind of expenses.
However, it should be kept in mind that personal loans are for emergencies and it should not be misused. Discussed below are 9 things that you should never do in relation to a personal loan:
Many a time, applicants tend to make multiple applications with different banks or lenders for a personal loan. The idea behind this move is the myth that at least one of the applications will be approved. However, this is not a healthy practice. The approval of a personal loan depends on a number of factors including the applicant’s credit history, repayment capacity, and credit score. Making too many applications at the same time makes it very evident to the lenders that the applicant is credit-hungry. This might end up in all the applications being rejected and the credit score of the applicant taking a heavy toll.
An applicant should always compare all the loan offers that are available before he or she applies for a loan. There are many aspects related to a personal loan such as processing fees, foreclosure charges, interest rate, and so on. It is important to scrutinise all of them before you actually apply for a loan. You can visit BankBazaar to find out the personal loans that you are eligible for and compare all the necessary aspects. You can also apply for a personal loan through BankBazaar once you have compared the available options.
This is one of the most important factors which should be chosen carefully. A personal loan is a debt and it should be used only for meeting urgent cash crunches. The tenure of repayment offered by your lender can be as much as 60 months. However, the longer the tenure, the more will be the effective interest on the loan amount. In order to avoid splurging money on interest, it is advisable to choose a tenure of repayment for affordable loan repayment. Choosing a tenure which is too short might also not be very helpful as you might fall short on cash to pay off the EMIs on time. This will have a bad effect on your credit history and credit score will be affected.
Having multiple active personal loans at a given point in time is not a wise thing to do. On the basis of your eligibility, you might have not received the total amount of loan that you were expecting. In such cases, you should not apply for a second loan. Your portrayal will be that of a credit-hungry borrower and that will have an ill effect on your credit history. Moreover, you might be pressurised under heavy debt because of multiple active loans.
On the basis of your credit score and loan repayment history, lenders might offer personal loans up to Rs.50 lakh. However, being the borrower, you should decide the loan amount that you actually need. You should not borrow a bigger amount just because you can. You should take your loan repayment capability under consideration before taking a loan. It is wiser to take just a small amount of loan and meet the emergency expenses instead of taking a hefty loan and defaulting on repayment of the same.
Once you have received your loan and have met your immediate expenses, make sure you pay back your lender on time. Do not skip your EMI payments and avoid late payments. Not paying on time or defaulting will affect your credit score and your repayment history. In addition to that, lenders are likely to be reluctant to approve future loans.
Make sure you go through the terms and conditions of the personal loan before you sign the documents. Being aware of these conditions will help you in the future in case of some discrepancies.
Once the loan is disbursed, you will receive few loan documents. Go through these documents very carefully and make sure that there is no wrong information. In case there is an error, get in touch with your lender immediately to make the corrections in the documents. A few things that you should definitely read through are the loan amount, the rate of interest, tenure of repayment, etc.
Taking a personal loan and spending it on activities of speculation such as stock market investment would be the last thing that you would want to do. Having said that, making investments in the stock market is a healthy habit, you should consider doing the same only with the money that you have kept aside for investments. You might have the idea of investing the loan money in the stock market and draw good returns. However, you should remember that the gains that you are expecting might not turn in your favour. If that is the case, you will not gain anything in the end.
Keeping the above-mentioned points in mind, we can easily conclude that personal loans are meant for emergency and should be treated the same way. Apply for a personal loan only when you have to meet urgent expenses and make sure you repay your debts on time. Following these few things will help you stay out of unwanted trouble.