6 Most Common Mistakes to Avoid if You Want Your Personal Loan to be Approved
Sometimes it happens that despite utmost financial planning, you can get stuck for money.
In such cases, your savings might not be enough for you. You also might not want to exhaust it all. A personal loan can rescue you from these roadblocks.
Applying for a loan is not rocket science. Yet, there are some errors that you can commit to getting your loan rejected. They can even cost you your credit score.
Common Mistakes to Avoid While Applying for a Personal Loan
Here is a list of 6 common mistakes you should avoid while applying for a personal loan.
Being Ignorant About Credit Score
A credit score is a 3-digit number that defines your creditworthiness. A score above 750 is considered acceptable. You can do the following to maintain a good credit score:
- Pay your EMI/credit card payments on time
- Try to use below 30% of your credit limit
- Keep the same credit card for a long time.
Keep checking the health of your credit score periodically. A bad credit score will not get your loan sanctioned from any bank. Learn more about how to increase cibil score.
Not Weighing Your Options
You must compare the charges of various lenders in the market before applying for a loan. Look for hidden costs like processing fees, lending charges, and foreclosure conditions. Go ahead and choose the bank having minimum fees and flexible policies.
Not to Compare Interest Rates
If you are desperate to get a personal loan, the chances are that you will go ahead with the lender, which says yes to you first. Don’t make that mistake. Carefully compare interest rates with the payment tenure of each bank before applying for the loan. Check if the rates are variable or fixed.
Not Maintaining Healthy FOIR
FOIR stands for Fixed Obligation to Income Ratio. Banks use it to calculate your capacity to repay the loan. It is the percentage of your fixed monthly bills and EMIs, including your applied loan installment to your current income. 40-50% of FOIR is considered to be reliable by the banks. It will be beneficial to your financial planning also to check your FOIR before applying for the loan.
Not Reading the Agreement
Remember signing the marked column in a lengthy deal without reading it thoroughly? Well, this carelessness can cost you extra charges levied by banks on your loan. So, check the necessary details like loan tenure, secured or unsecured loan, floating or fixed interest rates, etc. Don’t hesitate to ask questions to the authorized person if you don’t understand anything.
Not being Stable in Career
Job hopping is a red flag for the banks. A personal loan has no guarantee other than the stability of the person applying. If you keep changing jobs frequently, how can banks be sure that you will not be jobless one day? Before applying for a loan, you compare the interest rates of a bank. But you also check its reliability. Thus, it is evident for banks to check your reliability.