Emergencies can come up when you least expect them. We all try our best to plan ahead. But even after planning, we could find ourselves struggling with finances in an emergency.
During these inevitable situations, personal loans can come to our rescue within 24 hours, making it one of the most sought-after financing facilities.
Whether it is a medical emergency or a financial one, availing a personal loan is a great way to get substantial funds in a short time. However, applying for a personal loan in haste can end up further complicating the situation.
Here are seven common mistakes to avoid when applying for a personal loan for an emergency
1) Not Knowing Your Credit Score
Always ensure to check your credit score and evaluate your creditworthiness before applying for a personal loan. If your credit score is very low, your loan is likely to get rejected, or you may end up with a high-interest loan. This could worsen your financial situation in the middle of an emergency.
2) Poor Research
Even during a financial emergency, it is wise to take a moment and research the options available. Consider all the aspects of a personal loan, such as interest rates, processing fees, secure fees, and repayment terms, then do a comparative analysis. This will help you make an informed choice to get the maximum amount, the right tenure, and affordable EMIs for your loan.
3) Focusing Only on the Interest Rate
Even though interest rates are an important aspect of a personal loan, focusing only on receiving a good interest rate is not advisable. Consider all the loan expenses such as EMI bounce fees, processing charges, annual maintenance fee, etc., along with the interest rate to understand the overall cost of the personal loan.
4) Applying for Too Many Personal Loans
Every time you apply for a personal loan, the lender makes a hard inquiry into your credit records. Hard inquiries lower your credit score. If you apply to multiple lenders for a loan in the hope of getting the best deal, the multiple hard inquiries may adversely affect your credit score in the long term.
5) Not Checking the Eligibility Criteria before Applying
Always check the eligibility criteria for a personal loan before applying. Every lender has a different eligibility criterion, and if you don’t fit the criteria, your application may be rejected. This can impact your credit score. Make sure you fit the eligibility criteria before you submit your loan application.
6) Taking a Loan Without a Specific Purpose
Even in an emergency, take a step back and think – do you really need extra funds? If yes, what is the purpose? Don’t apply for a personal loan unless you know what you are going to use the funds for. Taking a loan without a purpose may unnecessarily burden you with loan EMIs.
7) Not Reading the Fine Print
Your urgent need for funds should not keep you away from spending a few minutes scrutinizing the terms and conditions of the personal loan. Be informed about extra charges, if any, and terms of repayment beforehand. This will save you from any unpleasant surprises later in your loan tenure. This will also help you ensure that you choose a personal loan within your repayment capacity.
Avoid these mistakes while applying for a personal loan to avail much-needed financial support during emergencies. Whether it is a spiraling hospital bill for a medical emergency or just a tight payment situation in your business, keep these points in mind whenever availing a personal loan. It will help you find the best personal loan option that you are eligible for, with little or no hidden charges within your repayment capacity.
Guest Post Author: Shiv Nanda is a Financial Analyst at MoneyTapApp!