Somepeople may face an emergency need for funds. Personal loans are beneficial to meet such situations because of their easy availability. The entire procedure is completed quickly and you do not have to provide any security when you opt for a personal loan.
However, like all kinds of loans, you need to be careful before you apply for such a loan. Although there are several benefits of a personal loan, here are seven things you must avoid while using a personal loan to meet the fund requirement.
- Choose a longer duration
It may be tempting to choose a longer duration when you apply for a personal loan to reduce the equated monthly installment (EMI). However, a longer tenure means a higher interest payout, which drains your financial resources and does not help improve your situation.
- Avail of a higher amount
Personal loans may be used for any purpose without any limitations. You may be eligible for a higher amount. However, you must avail of an amount that you are easily able to repay without facing any financial difficulties.
- Apply for multiple loans
It is important that you do not avail of multiple personal loans to avoid falling into a debt trap. If you face a liquidity crisis, it is recommended you try to meet these through your savings or seek help from family and friends. It is also crucial that you do not apply for a personal loan from multiple institutions. This is because every application negatively impacts your credit score and may make it difficult for you to avail of any loan in the future.
- Miss an EMI
It is important that you do not miss on any EMI during the loan repayment tenure. This will reduce your credit score, which will make it difficult for lenders to approve your loan in the future.
- Overlook comparison
Different financial institutions offer various options to avail of personal loans online. It is crucial that you conduct extensive research on different options before making your decision. You must compare EMI schedule, interest rates, loan amount, and tenure offered by various lenders to make an informed decision.
- Use for recreation or speculation
You may be tempted to use small personal loans to meet recreational purposes like shopping. You may also want to earn a quick buck by using the money for speculating in the stock markets or other such activities. It is recommended that you avail of a personal loan only to meet urgent fund requirements.
- Sign without reading the fine print
Lenders often try to reduce the paperwork by helping you fill out the application form. However, it is crucial that you do not sign any document without reading all the terms and conditions and clearly understanding the fine print. You must know everything about the tenure, interest rates, and repayment schedule before signing any document.
Lenders often provide you with an approval or sanction letter along with other documents when you borrow a loan from them. This includes all information like personal loan interest rates, EMI schedule, tenure, and other terms and conditions. It is important you retain all such documents to avoid any discrepancies in the future.
Personal loans are an excellent way to meet short-term financial crises. However, use it responsibly to maximize its benefits and avoid financial burden.