Mistakes to avoid while applying for loan

It is dependably a smart thought to be prepared. Remember these pointers when you apply for a credit to spare yourself from unnecessary pressure.

  • Check your credit rating

All banks verify the FICO Score of the loan applicants.  A bad FICO Score could lead to rejection or higher cost of the loan while a good score helps you secure a loan easily, and could even result in the lower interest rate.  So before applying for a loan, check your FICO Score and take steps to keep it healthy. If your credit score is 750 or above then your chances of fetching a good loan deal, bargaining for a lower rate of interest are high. On the off chance that your score is lower than 750, you are helpless before loan lenders on interest rates.

  • Compare Various Loans

Devoting a little time to compare loans can help you save a lot of money in the long run. Visit various banks to know about the offerings. Discuss with your friends and colleagues to get an idea of various options and facilities they are availing for their loan. Do an online comparison of various products to fetch the best loan deal according to your needs. Compare all your alternatives to make an informed decision.

  • Borrowing Beyond Your Capacity

You should always consider your income levels while taking a loan and borrow the amount which you can easily repay. Before granting the loan, banks determine the amount eligible to you by looking at your income and existing liabilities. They, however, do not take into account your existing expenses. You are the best judge of your existing expenses and so do not take a loan which results in higher EMI and put you in financial distress.  If it is higher or too close to your monthly income, then consider a cheaper option for the thing you want to buy.

  • Negotiate for the best rate

Banks are always competing among themselves for lending to credit-worthy borrowers. So negotiate hard to get a better interest rate on your loan. Even a fraction of a percentage of APR could mean a substantial reduction of repayment burden.

Compare interest payable, charges when installments fall due and all other charges. Your bank may state it offers particular rates to its current account clients yet you may at still find less expensive loans available somewhere else.

Within their loan offerings, banks have products that could work out cheaper for you. These could be loans against assets such as gold, shares or even deposits. Since these are asset-backed and secured the interest rates could be much lower than personal loans.

  • Know the risks of secured loans

Secured loans are less expensive than unsecured loans however you risk losing your home in the event that you don’t keep up reimbursements. Secured loans are just offered to mortgage holders with value in their property and mean the moneylender takes a charge on your property if you fail to pay. So don’t sign-up unless you’re sure that you will be able to meet your repayments. This sort of credit is fundamentally less risky for loan companies but risky for borrowers.

  • Opt For Shorter Tenure

It’s true that when you spread the loan over many years, you’ll pay lower EMIs. But this may result in paying more money as interest. When applying for any loan, always choose the shortest term available to maximize the benefits of your loan.

  • Read the Agreement Properly

While going for a loan, borrowers only focus on the interest rates and tend to ignore other important aspects. They also choose to ignore going through the agreement clauses, which could result in missing out on critical terms and conditions. Do read the agreement thoroughly before signing. If you do not understand anything written in the document make sure you get all the answers before you sign. You must consider the Term of the loan, It is a secured or unsecured loan, interest rate fixed or variable, charges, fees and penalties for non-repayment.

  • End-use purpose

Limit the loan amount to what your end-use purpose is. While there will be a temptation to seek a loan for things like leisure travel and to buy the expensive item you so like. Accessing loans to fulfill such desires can mess up your finances since you will add another repayment component that would go out of your monthly salary.

  • The personal loan should be your last option

Borrowing personal loan may seem like a convenient loan alternative since there might be negligible paperwork. It should be your last option because, after credit cards, personal loans are the most costly advances that are accessible in the market. Borrow it if you feel that it will protect you from increasingly costly obligation – like, in the event that you are struggling with heavy credit card bills or you expect it to build up an asset. In any case, don’t significantly think about taking a personal loan to spend it on a depreciating thing.

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