Personal loans are a popular and instant financial tool to cater to various financial needs, including consolidating debt, planning a wedding, funding education or paying any major expenses.
However, getting a 1 Lakh Personal Loan or any amount has its own challenges. There are some common mistakes that borrowers often make when applying for a personal loan.
Gold Rate
04 April 2025
In this blog, we will discuss the top 10 mistakes that borrowers tend to make when availing of a personal loan and provide guidance on how to prevent them.
- Not assessing your financial needs before borrowing
One of the most common mistakes is borrowing more than you need. A higher loan amount may seem tempting, but it comes with a higher interest rate and increased equated monthly instalments (EMIs) and a longer repayment tenure. Make sure you estimate your financial needs carefully and then borrow only what is essential. For instance, if you need a 5 Lakh Personal Loan to fund your kid’s higher education, don’t borrow more than that for backup.
- Not comparing interest rates
Many borrowers think about loan approval from their banking partner without even comparing personal loan interest rates offered by other lenders. A high rate of interest can significantly increase your overall borrowing cost. Always conduct thorough research and compare rates of various lenders before choosing the most suitable one.
- Not checking additional charges
Apart from interest rates, personal loan involves other charges as well, such as processing fees, prepayment charges, late payment penalties, etc. Failing to pay these hidden costs can lead to making your personal loan a costly affair. Make sure you know all the charges involved in availing of a personal loan.
- Avoiding the EMI calculations
Using a personal loan EMI calculator prior to applying for the loan is essential. It will help you understand how much you have to pay each month and whether it fits your budget. Skipping this step can lead to financial strain.
- Not checking lender’s eligibility criteria before applying
Every lender has their own eligibility parameters for personal loan approval. Not knowing the lender’s personal loan eligibility criteria before loan application can result in rejection and a reduced credit score. Review the loan’s requirements carefully before extending your personal loan application.
- Not reading the terms and conditions
Your loan personal agreement often includes some crucial details about your repayment schedules, charges, penalties, and other terms and conditions. Overlooking these terms can lead to disputes later. Make sure you read your loan agreement in detail before signing it.
- Ignoring the importance of credit score
Most lenders require a CIBIL score of 750 or above to approve a personal loan application. A poor credit score can lead to loan rejection or higher interest rates. You must check your credit score beforehand and take measures to improve it if required.
- Delaying or missing loan EMIs
It is crucial to make timely repayment to avoid penalties and maintain a healthy credit score. Missing even a single EMI can result in additional costs and damaged creditworthiness.
- Applying for multiple loans simultaneously
Submitting multiple personal loan applications within a short period can have a negative impact on your credit score and make you appear credit hungry to lenders. One must be strategic and focused in their applications.
- Not tracking your personal loan application
Make sure you monitor your personal loan application status, or else it can lead to delayed disbursal. Regularly checking the status can help you address any issues promptly and ensure a smooth disbursal process.
Taking a personal loan can be a cakewalk if you avoid the common mistakes mentioned above. Avoid borrowing beyond your needs, go through the terms and conditions thoroughly, and monitor your loan application status to stay updated.
