5 costly mistakes to avoid while taking a personal loan

There are times in life when we run out of money. At that time we are in search of such a friend or relative who can help us in this difficult time. If for some reason no one is able to help you at that time, then that time becomes more difficult. You must have seen many such advertisements that talk about giving you a quick personal loan at a low interest rate. There are various types of personal loans such as travel loan, medical loan, education loan, loan taken for marriage, home improvement loan. However, it is your responsibility to verify the authenticity of those claims before opting for any loan. Personal loans are generally to be taken for the individuals who want to fulfill their life goals. Also personal loans are taken during any emergency.

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Things to keep in mind before and after taking a personal loan:

Before applying for loan

Check Your Eligibility Before Apply

If your credit card or loan application is rejected, it is duly registered by the TransUnion CIBIL. When this happens, other lenders become wary and you may find it difficult to get a loan in future. That is why it is worth noting here that whenever you think of taking a loan, before that you must check your eligibility.

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Do not take personal loan for investment

Personal loan is an unsecured loan due to which it is given at a high interest rate. That is why here you are advised to use personal loans to grow your business and not to invest money in such stocks which do not seem to be going in your favor.

Borrow only when you can pay it off

Make sure to check your current debt to income ratio before taking a personal loan. Ideally the total EMI of your loan should not exceed 40 per cent of your income.

Take short term loan

Personal loan is an unsecured loan hence its tenure is longer than other secured loans. Most of the lenders approve a limited amount (maximum 5 to 10 lakhs) which they expect you to pay back within 2 to 4 years.

Read the Terms and Conditions carefully

Many times you must have seen some paragraphs written in small letters on official documents, which you tend to ignore. They are written there for many reasons, never ignore them. Many companies write most of the important things in such small letters. Here you should note that if you want to protect yourself from any embezzlement, then read them carefully before signing such documents.

Things to keep in mind after getting a loan

Pay on time

A late payment by you can adversely affect your CIBIL score. Late payment can cause trouble in the coming time, you may have trouble getting new loans. Also, you may have to pay additional interest along with a penalty on late payment made by you.

Never use retirement funds to repay personal loan

If you have not paid the personal loan installment for a long time, then it can become a big problem for you. Irregularity in paying installments not only lowers your CIBIL score but also increases your stress which is harmful to your health.

Return money only when possible

Diwali Bonus, Salary Increase, Promotion, Freelance Work, “There can be many occasions when you have extra money to use to pay off your personal loan installment.

Keep an eye on interest rate fluctuations

As per RBI guidelines, the base rate often undergoes minor changes, which in turn affects the interest rates charged by the lenders. You can get your loan refinanced if another lender is giving you a loan at a better rate. Clear the old loan before taking a new personal loan This can go against you by taking frequent unsecured loans. It is often seen that people keep taking personal loans even after having sufficient income, due to which their CIBIL score decreases. By doing this you may find it difficult to take loans in future.