Loans can prove to be very helpful when one requires funds to establish a business, purchase a home, fund their education, or for any personal reason. But if these loans are not handled wisely and carefully, they can make one fall into a debt trap. Listed below are six loan blunders that most of the newbies commit.
Not considering loan repayment capacity
Newbies tend to commit this mistake of overestimating their loan repayment capacity that depends on their income, expenses and existing EMIs, and consequently, they end up opting for too long a tenure with small EMIs, which results in a high cumulative interest or a very short tenure with high EMIs, so they have to spend a large amount of their income for the repayment. If one wishes to borrow money, such mistakes can be easily avoided by using online tools like an EMI calculator to plan suitable things.
Not comparing different deals
The interest rates for the same amount and time can vary widely at different lenders. One must do detailed research so that they can compare the various deals. Doing such a market survey can save a large amount of money by putting hands on the best deal available in the town.
Applying at multiple lenders
Newbies believe that applying at multiple lenders will increase the chances of their loan being approved but what actually happens is that each time they apply at a desk, it gets recorded on their credit report and such a credit report makes the lender feel that the person is too desperate to get a loan. Thus, one must always do their research and then apply at that one place where they think that they have the maximum chances of getting their loan approved.
Not reading the loan agreement
Loan agreements are generally too lengthy and exhausting that people skip in a hurry. Loan agreements can have several hidden clauses and charges that can be very painful during the repayment of the loan. Therefore, one must take enough time to read the agreements carefully before signing to avoid missing any critical information.
Not having proper documents
Beginners are most likely to commit the mistake of not having complete documents. A lot of times, loans are rejected just because the borrower doesn’t apply with all the required documents or if the information provided by him doesn’t tally with the records. Therefore, one should plan everything before they apply for the loan and check if they have all the asked documents against the list of documents provided by their bank.
Applying for long tenures
A lot of times, the borrowers try to avail loans that have longer tenures to make the loan repayment easy for them. This might be an advantage, but the disadvantage definitely overshadows the advantage. If one has to repay a loan in let’s say three years and they get it changed to six years, the cumulative interest that they will have to pay significantly increases.