Going through a loan application process is now easy, thanks to customer-friendly approach from banks and NBFCs, and technological evolution which makes paperwork processing quicker. From an era where one had to wait for months for a loan approval, you can now get spot loans just by walking into your nearest ATM. There is no denying the fact that easy availability of various loans has helped people circumvent financial adversities. Borrowers, however, still commit some fundamental errors in their quest to borrow funds instantly.
Taking a loan may be easy, but by following the tips given below you can be an informed borrower with an effective loan management plan in place.
Here is a look at 6 such errors—and ways to avoid them for better loan management.
1: Not reading the fine print: Ask yourself honestly how many times you have read the loan agreement offered to you by the lender, and the answer, unsurprisingly, may be rarely ever. Most loan seekers just sign on the loan terms and conditions in the agreement, thinking of it as a mere formality without checking the details of the agreement.
Know that if you ever come to a situation where you do not agree with the lending bank or NBFC on any point, the terms and conditions agreement is the final word on it. Since you are a signatory to the terms and conditions, reading the fine print is of utmost importance.
Tip: Take your time to read the terms and conditions agreement including the fine print. You do not have to sign the loan agreement instantly. Understand each aspect of your loan agreement if you are not sure of any of the terms and conditions.
2: Taking up a loan for someone: India has a strong family structure and sometimes people take up loans for their near and dear ones. But your finances should preferably remain detached from those of your relationships. Money and relationships are best not mixed, for you could easily lose both. Taking loans on behalf of friends or family members, without fully considering the consequences, could lead to a situation where your credit score suffers. If the person for whom you’ve taken the loan decides not to repay you, your financial planning would be severely dented.
Tip: Keep personal relations and financial relations separate, for a healthy financial and social life.
3: Opting for spot loans: Today, many banks offer spot loans where all you need to do is to walk up to your nearest bank ATM and get instant cash for a personal loan. Such loans may sound good for someone facing an emergency crisis, but with spot loans you are not aware of the associated terms and conditions.
Instant loans are likely to become more popular with time but without knowing the exact terms and conditions of any loan, it remains a high risk loan for you as a borrower.
TIP: Loans should only be taken when you are not in a position to raise funds on your own. Unless faced with an emergency, avoid spot loans. Check with your bank or NBFC about the loan details and compare various loan offers before selecting the best one for you.
4: Giving wrong information to the bank: This is not only unethical but can also be a criminal activity. With growing use of technology and the propagation of digital transactions, lenders are likely to unearth adverse information if any, which may lead to a loan denial.
TIP: Being open upfront with the bank can work to your advantage instead as the bank will consider your honest disclosure, and take your point of view and loan application more seriously.
5: Not adequately researching options: When you go out to a buy a shirt or a pair of shoes, you try different ones before picking the right one. You need the same approach to buying a loan. As a consumer, you are well within your right to compare various loans, check the pros and cons of each loan offer, and then select the best one for your needs.
Tip: Research and comparison does not mean you apply for multiple loans as that could spoil your credit score. Instead, it means checking the terms and conditions for each loan offer, your repayment conditions, interest rate on offer, need for collateral, etc. to find the best loan scheme for your needs.
6: Non-maintenance of statements and accurate records: Your responsibility does not end just by paying your loan EMI each month. Always maintain proper records of your loan including your loan account statement. Any dispute with your lending bank or NBFC will require you to furnish relevant documents to support your stand on the issue.
TIP: Have a dedicated documentary file for all your loan records, including copy of your loan terms and conditions agreement, your loan EMI payment records, and loan account details. When needed, you will not have to rush around tracing all your loan related payments. Also, keeping such a document can help build financial discipline when it comes to servicing your loan.
The author is CEO BankBazaar.com