Taking personal loan? Don't make these five mistakes

Personal loans are sanctioned by the banks with minimum paperwork and without any collateral. But, don't fall in the debt-trap. Avoid this loan, remember the high rate of interest. However, if you have to take personal loan, avoid the mistakes. Read this article.

Have you decided suddenly to go to a trip, but can't arrange money at short notice? Your cousin met with an accident and requires money immediately? No problem, take personal loan, isn't it the easiest loan to get? In such situations personal loan can give you relief. But beware! Try to avoid taking personal loan. The simple reason behind this is that this loan is given without any collateral, it involves relatively less paperwork,and so the rate of interest of taking personal loan is very high, sometime as high as 24% p.a. However, if there is no other alternative except taking personal loan, remember the mistakes which should never be committed; follow the 'donts' mentioned below.

Don't sign blindly

Never, never sign on the dotted line. Read the detailed terms and conditions very carefully before signing the loan agreement at the time of taking a personal loan. If there is a dispute at later stage between the borrower and the lender, the fine print would work against the borrower because he/she earlier signed the agreement. So, it is absolutely necessary to read the terms & conditions, rate of interest, pre-payment charges, etc. So, you must take your time to sign the agreement.

Don't take more than one personal loan at a time

For personal loan, banks are very liberal. They don't ask detailed reasons, they don't ask for collaterals. They just give loans. You can avail personal loan for everything, be it marriage, be it a foreign trip, for a new car, everything. But be careful! Avoid the debt trap. Try not to take a personal loan before completing the previous one. And don't take the second loan to pay the previous one.

Don't borrow more than your capacity

The personal loan must be taken only if you are confidant enough to repay it comfortably in time. Moreover, the repayment must not be 30 to 35% of your earning. Borrowing more than the capacity means inviting the financial disaster.

Don't avail loan of a longer tenure

Personal loans are given for a tenure ranging from one year to seven years. However, while taking such loans, the borrower must remember the high rate of interest. The longer the tenure, the higher the interest component would be. So, the borrower must try to take personal loan of shorter duration.

Don't take personal loan without checking other alternatives

The rate of personal loan is very high. So before taking personal loan, a person must consider other available alternatives. For example, the borrower must examine the options of taking loan against the property, against the fixed deposits, against gold ornaments or loan from the relatives. If other alternatives are not feasible, only then he/she should consider taking personal loan.

It is reiterated that personal loan must be avoided at all costs. However, if you have to go for it, take every precaution of reading the conditions minutely and avoid falling in debt trap. You must make every effort to finish off the liability (personal loan) at the earliest. This is absolutely necessary for mental peace.

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Author: Kailash Kumar24 Mar 2016 Member Level: Platinum   Points : 4

Personal loans are given only after evaluation of individuals credit history, sources of income and verification of ability to repay. It is not that all and sundry will be able to get personal loans without any collateral and minimum paper work. One has to qualify for personal loans as per guidelines of the bank which are generally stricter.
Also it is mandatory to have a bank account to apply for a personal loan. In my personal opinion, one should never go for personal loans particularly for buying luxury items and tourism purposes. It is better to save the money and utilise the same for such purposes. One should always remember that the personal loans carry very high interest rate which is likely to create problems in case the loan is not repaid in time.

Author: K Mohan02 Oct 2016 Member Level: Platinum   Points : 4

Well for those who have potential to earn more and save more in life, they need not look for personal loan and its importance, but it is really useful for those who want to have some decent living with staggered payment of the product and services they want to enjoy, personal loans play important role. By the way, if you take one personal loan and you are sincere in paying the installments in time, that company would voluntarily induce you to go for second loan. But we should not fall for that temptation. When we need only we should go for loan because no loan comes for free and we are bothered with interest and that has to be paid. For example my scooter is running on loan from a financial company of reputed nature and they are calling me frequently after 6 installments were over and asking me to consider further loans to purchase various things. But we are keeping our wishes at bay as we want to get rid of first loan in full and then think of second one.

Author: Venkiteswaran08 Jan 2017 Member Level: Diamond   Points : 4

This article can be much relevant in the current times when interest rates are reduced drastically and banks are pushing their marketing departments for selling more loans. People will be easily tempted to take loans seeing the lower rates of interest. At that time a background knowledge on reading this article can be helpful.

I will just add a point that one should discuss and get as possible details as possible before deciding to take a loan. Ignorance cannot be pleaded as defence when we land in problems of self creation.

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