To avoid risks, one should learn everything there's to know about the particular loan process. The main point is that one should plan, prepare, and estimate their options with a clear mind to maximize their fiscal success.
Personal loans have today become an ideal borrowing option to fulfil urgent monetary needs. However, there are some crucial factors that lenders consider while evaluating one’s eligibility for a personal loan.
Credit score is one of them. Having a good credit score determines the borrower’s creditworthiness and helps a lender decide whether or not to approve a loan application. Having a good credit score increases the borrower’s chances of getting a loan, whereas a bad credit score reduces that chance. Additionally, while opting for a personal loan, one should make sure to receive the best deal possible, by comparing interest rates from different borrowers.
Madhusudan Ekambaram, CEO and co-Founder, KreditBee says, “The elevation of personal loans is on a rise, and the growth can also be attributed to the efficient integration of technology, which has allowed individuals to get loans easily and in no time. It’s thus essential to be clear about the various fundamentals while concluding for particular loans.”
Here are some things to avoid when opting for a personal loan:
Amount of Loan: Borrowers get into a debt trap when they end up obtaining a loan that they cannot afford to repay. Hence, it is highly recommended to borrow the amount as per one’s repayment capabilities. Ekambaram says, “Take out a loan that you are confident you will be able to repay on time. According to the rule of thumb, personal loan EMIs should not exceed 10 per cent of net monthly income.”
Too many Loans: Applying for too many personal loans could harm the borrower. Ekambaram points out, “A hard inquiry is made when a lender processes a borrower’s application, and it will appear on their credit report. The borrower’s credit score may suffer if there are too many hard inquiries.” Hence, even if you need money right away, applying for too many personal loans is a bad idea. In a dire financial situation when applying for a personal loan, one should apply for a personal loan from a slew of lenders.
Loan tenure and EMIs: Not striking a balance between tenure and EMIs is one of the biggest mistakes that borrowers make while opting for a personal loan. For instance, as a borrower, you can lower your EMIs by taking out a longer-term loan. While this may help to reduce your monthly repayment amount and relieve you of financial stress, keep in mind that it may also increase the total interest you pay on the loan.
Ekambaram further adds, “To avoid risks, one should learn everything there’s to know about the particular loan process. The main point is that one should plan, prepare, and estimate their options with a clear mind to maximize their fiscal success.”