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Financial blunders can cost you big time. Whether it is managing your debt or your investments, you must be very careful when it comes to money mistakes. A simple mistake or negligence can drill a big hole into your pockets. You should be very careful, especially when you are availing a loan like personal loan.
With the advent of Fintect companies, digitalized processes and loan apps, availing a personal loan today is easier than ever before. But before applying for an instant money loan, there are a few things you must know in depth. In addition to checking the interest rates and processing fees, you must check your repayment capability, your affordability and your financial standing.
Read on to know more about the common mistakes that borrowers make when choosing a personal loan.
Common Financial Blunders in Availing A Personal Loan
A personal loan comes with quick processing and zero restrictions to end use. This makes this debt tool a very appealing one. In addition to that, they have affordable interest rates and extended repayment terms. There are many attractive features in a personal loan that makes it a better choice than most other lending instruments. But is availing a personal loan the most feasible option for you?
This entirely depends on your financial awareness and finance management capabilities. Read on to know the common blunders that you need to avoid while availing an instant money loan.
- Inadequate research
The first mistake that most people make when availing a personal loan is rushing into a hasty decision. They often skip the most important part of decision making which is thorough research. Not doing your research will lead you to an uninformed decision. You could be getting many unpleasant surprises along your loan journey.
That’s why it is very crucial to conduct thorough research before making a final choice. Know about the different financial terms and their meanings in context to your personal loan. For example, know the differences between fixed interest rate and floating interest rate. Learn about the different fees levied on the loan. Understadn the financial glossary. This will help you make better choices according to your financial appetite.
- Not comparing the plans of several lenders
Each lender has unique standards and guidelines for funding loans. They also have different criterias to calculate the interest rates on your loan. For example, the interest rate levied by banks is often higher than the loan apps. You must research various websites and compare different lenders to find the best instant personal loan offer.
Not doing proper research and not comparing all the options available, may keep you from getting a better interest rate on the loan. Spare some time to compare the reputed lenders, sort a list and check out the one that offers the overall best package.
- Submitting multiple loan applications at once
When planning to avail a personal loan, many people submit their loan application with different lenders. But this is a grave mistake to make. When you submit multiple loan applications, it impacts your credit score negatively. The lender may also deny your loan application because of multiple applications.
You must do your research and submit your loan application only with the lender that offers you the best loan terms. Also go through the eligibility criteria properly and submit all the documents correctly to avoid loan rejection.
- Failing to check your credit score
Not checking the credit score before applying for a personal loan is another blunder that most people make. Before approving a loan, all banks and NBFCs check your credit score. It is based on this credit score, the lender approves or denies your loan application. They also determine the interest rate, based on this score.
Thus, it is very important for you to check your credit score before applying for the loan. If your credit score does not look good then take necessary measures to improve your credit score. It might take 3 to 6 months to reflect a change in your score after you have made the necessary adjustments.
- Not reading the fine print
Most of us are used to clicking on the check box without reading the terms and conditions. But this is a big blunder, especially if the terms and conditions include details about your finances.
Always spare some time to read the fine print. Raise your queries if you do not understand something, or try to negotiate the terms if they do not fit your requirements. Going through the details can prevent you from making a big financial mistake.
- Taking out a huge loan unnecessarily
Personal loans are no doubt very useful tool. But you must avoid availing a loan just because its available. An instant money loan is a big financial commitment and it adds to your monthly financial burden. Not to forget you always end up paying more than what you borrow.
That’s why always make sure to apply for a loan only when it is absolutely necessary. Estimate a budget and stick to the numbers. Do not over borrow just because you are eligible for a larger loan amount. The lender might try to tempt you but you have to remember about the repayment burden that comes with a loan.
- Excessive borrowing
One can apply for a fast personal loan via their smartphone with just a few documents and their KYC information, and the process is quite simple. As a result, many people take out several personal loans to cover their financial needs.
However, obtaining more personal loans may impact your credit rating. Your chances for future loan will also decline if you have multiple on-going loans. It is always wise to borrow only when you need and as much as you need.
- Selecting lengthy repayment terms
Many people opt for a longer tenure just because it reduces their EMI burden. But choosing for a long tenure increases your total interest pay outs. In addition to that, it also increases the tenure of EMI burden.
It is ideal to close your loan as soon as possible. This will lower your interest rates, improve your credit score, and help you get debt free sooner. You also become elibigle for another loan as soon as you close your on-going loan.
- Not keeping a tab on ongoing-debts
Many people do not go back to the lender to check their current loan status. But this is one of the biggest mistake that can lead to unnecessary costs. You must keep a continuous tab on your loan account. When you apply through a personal loan app, all the details about your loan is available on the app. You can check for any additional charges, mismatched calculations, errors or penalties charged by the lender. Report these immediately and get them resolved.
The Bottom Line
Getting a personal loan for the correct reasons can assist you in bridging the last-minute funding crisis. However, signing up for such loans requires performing adequate due diligence to ensure your family’s financial stability.
While looking for alternate sources of funding when you’re in need, it’s crucial to conduct a thorough investigation. An instant loan is simple to avail but it can become difficult to repay if you miss on the important steps.