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Five Personal Loan Mistakes to Avoid Research Team | Posted On Friday, February 19,2016, 06:12 PM

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Five Personal Loan Mistakes to Avoid



Your child is sick and you need money for an emergency? Where would you go asking for help in these difficult times? Availing a personal loan from the bank has to be the answer. Your cousin needed money badly for his marriage. He availed a personal loan and had a great marriage. There is no better loan than a personal loan, in an emergency. However, you need to be very careful when you avail a personal loan. This loan charges a very high rate of interest, as it is an unsecured loan (no collateral). You better avoid these mistakes, before you avail a personal loan.

You avail too many personal loans

You do not need to give a reason to the bank, when you avail a personal loan. You can avail a personal loan, for pretty much whatever you want. Foreign holiday…Medical emergency….Your wedding…..But remember, If you are the type who avails a personal loan for flimsy reasons, you might struggle with the repayments. If you have more than a single personal loan and you fall behind in payments, your credit score is affected. Even if you keep applying for a personal loan from different banks, your credit score gets affected, as  banks view you as credit hungry.

You borrow more than you can repay

Availing a personal loan is easy. Repaying it is difficult.

Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.  

                                                                                                                                                                                             - Ogden Nash

You must avail a personal loan, only if you are confident you can make the repayments in time. Personal loans charge interest as high as 14% to 17% a year. The EMI on your personal loan should not be more than 35% to 40% of your salary, after accounting for expenses.

Read the fine print

Never sign on the dotted line before reading the terms and conditions of the personal loan. Read the fine print before you sign up for a personal loan, with the bank. If there is a fight, dispute or a misunderstanding between you and the bank, the fine print stands against you. You have after all agreed to the terms and conditions, while signing on the dotted line.

Study the terms and conditions of the loan, as well as charges such as interest rates, pre payment charges and pre closure charges. Take your time, read the terms and conditions and then sign up for the personal loan.

SEE ALSO: Why should you avail a Home Loan?

You avail a personal loan with a long tenure

Personal loans have a tenure of 1 to 7 years, to repay the loan. You opt for a personal loan which has a tenure of 7 years, just because you get extra time to repay the loan. This is not a good idea. If you avail a personal loan with a long tenure, you have to pay more number of EMI’s. If your personal loan tenure is long, you will have to pay interest for a long tenure. Your personal loan becomes real costly…..

Look out for alternatives

Personal loans charge you a very high rate of interest. You must look for other loan alternatives such as a loan against property, loan against fixed deposit and even a gold loan. You can avail these loans at a much lower interest rate, than a personal loan.

Yes…. If you face a financial emergency by all means go ahead and avail a personal loan. Just be careful and avoid these mistakes.



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