Mistakes to Avoid While Taking a Loan

Loans are easy and quick to apply for without risking any assets. However, there are several factors for you to consider before applying for instant personal loan to ensure that it is the right choice for you. 

Read on to know what they are and how you can avoid common mistakes while applying. 

Factors to consider while applying for a personal loan

Determine your reason for borrowing

Personal loans can be used for a variety of purposes, such as financing home renovations, higher studies, or even vacations. By ensuring that you know why and how much you want to borrow, you can create a repayment plan. This helps you avoid defaulting in the future and being judicious with the loan amount. 

Consider your credit score

Lenders use your credit score to determine your creditworthiness. A high score helps you get pocket-friendly loan terms along with a more competitive interest rate. So, work on building your credit loan before you take a personal loan. 

Check the associated fees

Personal loans may come with application fees, processing fees, origination fees and prepayment penalties. Be sure to read the fine print and understand the true cost of borrowing before you proceed.

Compare your options

Different lenders offer different interest rates, loan amounts, and repayment terms. Take the time to compare offers to ensure that you are getting the best possible terms for your loan. 

Top 6 mistakes to avoid while taking a personal loan 

Taking a loan can be a major financial decision with long-lasting consequences. Personal loans in particular usually have higher interest rates, which means you must be careful while applying for one. Here are the most common mistakes to avoid while taking a loan:

• Not reading the terms and conditions

Since different lenders have distinct terms, penalties, and associated costs, read and understand the terms and conditions before signing any documents. 

• Borrowing more than required

Take a realistic look at your finances before applying for a personal loan. Taking on more debt than required can lead to financial distress. 

• Not comparing your options to get the best deal

Borrowing in a hurry can lead to costly decisions that can impact your future financial health. Avoid this by evaluating different lenders’ terms to choose the most affordable loan. 

• Ignoring your credit score

Your credit score plays a significant role in determining your eligibility for a loan and your interest rate. So, before applying for a loan, check your credit score and take steps to improve it if necessary.

• Not having a repayment plan

Ensure you can comfortably make the monthly payments and repay the loan in full and on time before you apply. Use an EMI calculator to know your EMIs in minutes and plan accordingly. 

• Taking a loan for the wrong reasons

Applying for a loan for frivolous expenses or luxuries can lead to financial difficulties. So, ensure your loan can either improve your financial situation or at least doesn’t hurt it in any way.

By avoiding these common mistakes, you can make an informed decision when taking a personal loan while not compromising your financial health. At Fibe, you can get an instant loan up to ₹5 lac with minimum documentation, nominal interest rates and zero foreclosure charges. Download our Personal Loan App to get started!

FAQs on mistakes to avoid while taking a loan

What are the main risks of a loan?

The main risks of taking a loan include defaulting on the loan, which can damage your credit score and result in legal action taken by the lender. 

What should you not do before applying for a loan?

Before applying for a loan, you should not take on any new debts. Doing this can negatively impact your credit score and make it more challenging to qualify for a loan.

What 4 things should you consider before deciding to take out a loan?

Before deciding to get a loan, consider the reason for borrowing, your credit score, the interest rate and fees associated with the loan, and your ability to repay the loan on time.

What should you watch out for when getting a loan?

When getting a loan, watch out for hidden fees and penalties, high-interest rates, and loan terms. Read and understand the fine print before signing any documents.

Why do loans get rejected?

Loan applications get rejected for various reasons, including a poor credit score, too much existing debt, insufficient income, or a history of late payments or defaults in your recent credit history.