7 Things You Should Never Do When Taking a Personal loan
A Personal Loan is essentially an unsecured credit which you can avail for a period of 1 to 5 years, from a bank of your choice. When applying for a Personal Loan, the amount that you stand eligible for is largely determined by your source of income and your current financial health! When we speak of financial health, we imply a good credit history. For anyone enjoying a credit score of 750 and above it becomes relatively easy to Get a Personal Loan, as against someone with a weak score ranging from 300 to 700.
The disbursed loan amount can then be put to use for a wide variety of purposes such as sponsoring the education of a child, bearing medical expenses, managing wedding-related costs, renovating the home, or setting up or expanding a business. As is the case with other loan types, even a Personal Loan needs to be repaid in the form of equated monthly instalments (EMIs). The number of EMIs you are required to pay will depend on the tenure of your Personal Loan.
While a Personal Loan is exceptionally easy to procure, and often takes less than 2-3 days of time for approval, you should not take it lightly. As a matter of fact, you should strictly avoid all practices mentioned below while taking this loan. This will not only help you build a trust-based relationship with your lender but will also help you work your way towards a higher credit score.
1. Don’t Ignore the Rate of Interest
Never strike a deal with the first bank you come in contact with. It may be tempting to get your hands on the loan amount at the earliest possible. However, you should take some time out and compare the rates offered by different banks. A lower interest rate can help ease your financial burden significantly. You can compare various Personal Loan options at MyMoneyMantra.
2. Don’t Take it Easy With the Tenure
While you may be entitled to pay the loan in as many as 60 months, but if you can, try and repay it as soon as possible. After all, a Personal Loan is essentially a debt and will accrue interest over time. Hence, don’t be sluggish about the repayment duration, and opt for an optimal tenure.
3. Don’t Borrow More Just Because You Can
Most banks offer Personal Loans of up to 25 Lakhs, and in some cases even up to 50 Lakhs. If you have a good credit score and a reliable source of income, the bank may be willing to offer you a more substantial loan amount. However, you should have a clear picture of the amount that you are looking for, and don’t borrow beyond that. As mentioned earlier, the loan is a debt that you will need to pay interest on, hence, take only as much as you need, and save yourself from getting ripped off of your hard earned money, unnecessarily.
4. Don’t Miss Your EMIs
When it comes to enjoying a good credit history, missing out on EMI payments is not an option. Even a single missed payment can harm your credit score, and impact your ability to get fast loan approvals in the future. Hence, always have a plan in place regarding your EMI payments, so that you do not make the blunder of missing or delaying the same.
5. Don’t Take More than One Loan
Getting a loan can help you manage various expenses without putting any immediate financial strain, but, this doesn’t imply that you apply for a Personal Loan at the drop of a hat. Getting numerous loans can reflect poor fiscal discipline on your part and in some cases can adversely impact your credit score. Hence, stick to one loan, repay it ultimately, and then wait for a period of 4-6 months, before applying for another one.
6. Don’t Use the Money Frivolously
Since the lender does not have a say in the purpose you use the disbursed loan amount for, you may be tempted to use it towards the purchase of fancy gadgets, or a lavish vacation. However, do remember, that you will need to repay the loan, along with interest. Hence, make sure that you only use the amount to meet essential goals, and not to fulfil your fantasies if you are unsure about the loan repayment conveniently.
7. Don’t Use the Loan Amount Towards Investments
Investing your money in anticipation of good returns is a good practice, but spending borrowed money towards this end is not. Considering a Personal Loan often comes at an interest rate ranging from 11 to 22%, using the disbursed amount for investments in the stock market or other such alternatives can prove to be disastrous for your financial well-being, especially if you end up bearing losses.
A Personal Loan can often prove to be extremely helpful in times of need. That said, if you handle it recklessly, it may lead to unsolicited financial strains, and even disturb your credit score. We, therefore, advise you to be extremely mindful of the loan, the purpose you are taking it for, and the way that you will repay it. If you are careful about these aspects, taking and repaying a Personal Loan will be a piece of cake!
Also Read: Are You a Smart Personal Loan Borrower?
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