Applying for a personal loan? Don’t make these 6 common mistakes

If you are looking for a personal loan, you would, undoubtedly, be spoilt for choice. There are a dozen loan lending platforms which offer instant loans within 10 minutes. But the relationship with your lender doesn’t end the moment you take the loan. It only begins at that point.

Therefore, it is incumbent upon you to be extra careful at the time of taking a loan. There is a checklist of dos and don’ts which you must follow at the time of taking a loan. You can visit this article and this to know more on this.

Here we give a lowdown on some of the key mistakes which one must avoid at the time of taking a personal loan.

Personal loans: 6 key mistakes to avoid

I. Avoid borrowing at exorbitant rates: While you have plenty of options to choose from, avoid borrowing at a high rate of interest because the loan is easy to approve.

II. Do not rely on obscure lenders: It is recommended to choose a reputable lender. While the lending ecosystem is swamped with fintech apps and platforms, it is always better to choose a large lender such as a bank. However, if your application is not approved by the bank, then you may explore other avenues.

III. Keep unregistered lenders at arm’s length: Another pertinent thing to notice is whether the lender is registered by the regulator or not i.e., Reserve Bank of India. Sometimes the loan provider works as an aggregator but the partner institution which is disbursing the loan is registered with an NBFC or a bank. Therefore, one must exercise due caution before jumping the gun.

IV. Borrowing for discretionary spending: Back to borrowing – it is vital to evaluate the reason for taking a loan. If you are planning to borrow for the avoidable reasons, then you must relook at your decision. For instance, if you are planning to take a personal loan for travel then it is not a good idea. Read this article for more details.

V. Not checking processing and other fees: Another mistake which some borrowers make is to not look at processing and other fees. After all this will lead to an increase in overall cost. Therefore, it is pointless to choose a loan offer which carries a lower rate of interest, but the processing fee is 5 per cent.

VI. Not reading the fine print carefully: Last but not the least – applicants should read the fine print very carefully. For instance, some lenders add loan insurance (which is an optional cost) as default option. So, if you do not intend to choose it, you should unselect it. Such small oversight can cost you an extra ₹300-400 added to your EMI.

It is noteworthy to mention here that taking a loan insurance is not bad, but you should opt for it only if you want to choose it, and not because you were unaware of it.

Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.