Avoid These Common Mistakes When Taking Out a Personal Loan

A personal loan can be a great financial tool for emergencies, travel, weddings, home renovations, or debt consolidation. However, many borrowers make critical mistakes that lead to loan rejections, high interest rates, or financial burdens.

To ensure a smooth loan approval process and manageable repayment, here are the most common personal loan mistakes to avoid.

1. Not Checking Your Credit Score

Your credit score plays a major role in determining your loan eligibility, interest rate, and approval chances. Many borrowers apply for loans without checking their scores, which leads to:

Higher interest rates for low credit scores.
Loan rejection if the score is below the lender’s requirements.

Solution:

Check your credit score before applying.
Aim for a 750+ score for better loan approval chances.
Improve your score by paying bills on time and reducing debt.

2. Borrowing More Than You Can Repay

Many applicants overestimate their ability to repay the loan and take a higher amount than needed. This leads to:

Struggling with EMIs and financial stress.
Higher interest costs due to larger loan amounts.

Solution:

Use a loan EMI calculator to check affordability.
Borrow only what you need and can repay comfortably.
Keep your EMIs below 40% of your monthly income.

3. Ignoring Loan Terms and Conditions

Not reading the loan agreement carefully can lead to unexpected costs and penalties, such as:

High processing fees and hidden charges.
Strict prepayment or foreclosure penalties.

Solution:

Always read the terms and conditions before signing.
Compare processing fees, late payment charges, and prepayment rules.

4. Choosing the Wrong Loan Tenure

The loan tenure affects your EMI amount and total interest paid. Many borrowers choose:

Shorter tenure with high EMIs, making repayment difficult.
Longer tenure with lower EMIs, but paying more in total interest.

Solution:

Find the right balance between EMI affordability and interest savings.
Use an EMI calculator to compare different tenure options.

5. Applying for Multiple Loans at Once

Some borrowers apply for multiple personal loans simultaneously, which:

Lowers your credit score due to multiple hard inquiries.
Makes you look credit-hungry, reducing approval chances.

Solution:

Compare loans online before applying.
Apply for one loan at a time with the best lender for your needs.

6. Not Comparing Interest Rates and Lenders

Many borrowers settle for the first loan offer they get, without comparing interest rates and features. This can lead to:

Paying higher interest rates unnecessarily.
Missing out on lower-cost loan options.

Solution:

Compare interest rates from NBFCs and banks before applying.
Check for special offers, especially for salaried professionals.

7. Not Checking Prepayment and Foreclosure Charges

Many lenders charge a fee for prepaying or closing a loan early, which can impact savings.

Solution:

Choose a lender with low or no prepayment penalties.
Plan ahead and check foreclosure terms before applying.

8. Providing Incorrect or Incomplete Information

Submitting incorrect details in your loan application can cause:

Loan rejection due to mismatched documents.
Delays in approval and disbursement.

Solution:

Fill out the application carefully and accurately.
Ensure all documents, including income proof, are correct.

Final Thoughts: Apply Smartly for a Hassle-Free Loan

A personal loan is a great financial tool, but only if used wisely. By avoiding these common mistakes, you can ensure quick approval, better interest rates, and smooth repayment.

At Bravima Solution Pvt Ltd, we help you find the best personal loan options from top NBFCs, ensuring a hassle-free borrowing experience.