Don't make these 7 mistakes with personal loans

At some point in your life, you will probably be applying for a personal loan to finance your dream home. However, it is important for you to be extra careful when applying for a personal loan. There are a few common mistakes people make that end up jeopardizing their financial status. Let’s have a look at a list of seven common mistakes that people tend to make while availing a personal loan, or an installment loan.

1. Grabbing the first loan that is offered

Since an individual loan is an unsecured loan which does not require you to provide collateral, the rates of interest are typically higher. It is, therefore, advisable to do comprehensive research on the product and company before you sign on the dotted line. You must refrain from rushing into the application process and actually spend a few days examining and comparing the plans thoroughly before signing up for one that is perfectly tailored according to your needs and requirements.

2. Accepting unachievable repayments terms

An individual loan is meant to ensure that you lead a life of a superior quality, free of any financial stress or worry. Often people end up agreeing to terms that are not only difficult for them to follow but also end up locking them up in a vicious circle of missed repayments and unaffordable interest. It is best for you to do all the calculations beforehand and determine a repayment schedule and tenure that is both feasible and affordable for you.

3. Overextending yourself

Most people are inclined to the thought that lent money can be spent in any way possible after receiving it. Nevertheless, you must remember a simple fact that you will be ultimately responsible for repaying whatever you borrow. The idea is to establish exactly how much money you require at the moment, and stick to the figure without falling into the trap of overreaching. One of the common mistakes that people make with installment loans is to overextend their budget and go for a relatively higher loan amount that later becomes difficult to repay.

4. Taking too many individual loans

Since some finance companies do not require you to specify the reason for taking a personal loan, there is practically no limitation of how you make use of that extra money. However, you should refrain from this habit of applying for personal loans for flimsy reasons that do not really require you to borrow. Having more than one personal loan to pay back can lead you to struggle with your monthly finances, and fall behind on your repayment installments that will have a negative impact on your credit score as well.

5. Neglecting the fine print

Quite often, applicants are in such a hurry to get the money that they end up signing up the loan agreement form without going through the details mentioned in fine print. However, this practice is extremely dangerous and puts you at grave financial risk. By recklessly signing on the dotted line, you confirm your obligation to fulfill the terms and conditions of the agreement without even knowing what is mentioned in it.

6.Opting for a long tenure

Sometimes lending companies offer a maximum tenure on personal loans of up to seven years. However, if you intend on opting for the maximum tenure just so that you get extra time to repay it, you may be making a mistake. The fact is that the longer your tenure is the higher number of installment payments you need to repay to the bank.

7. Ignoring your credit score

A bad credit rating could actually cost you a fortune. The lending companies charge a higher rate of interest from a person who has a poor credit score, in order to cover for the risk of defaulting on repayment that he or she poses to the company. You must check your credit score before applying for a personal loan and take correctional measures such as paying off your debts or credit card bills in order to raise the score if it is low.

By avoiding the common mistakes outlined here, you can prevent yourself from both compromising on the security of your personal loan and paying back more than you can afford in the long run.