A Personal Loan might seem straightforward. You apply, share a few documents, and wait for approval. But it is still a long-term commitment. Whether you’re borrowing Rs. 1 lakh or Rs. 5 lakh, you’re signing up for repayments that can stretch over months, sometimes years.
If you’re planning to apply soon, or even if you’re already eligible and received an offer, it’s worth pausing and checking where things can go wrong.
Common Mistakes to Avoid Before Taking a Personal Loan
This article discusses the common missteps to avoid so you can make informed decisions and borrow wisely.
Not Being Clear on Why You’re Borrowing
A Personal Loan works best when you know exactly why you need it. “Instant disbursal” and “no paperwork” may sound appealing, but ask yourself, is the loan really necessary?
Maybe you want to renovate your house. Maybe there’s a medical situation. Or maybe you’re consolidating high-interest credit card bills. These are valid reasons. But borrowing for shopping or a quick holiday may become a challenge, especially when you’re still repaying months later.
When you borrow without a clear plan, the repayments feel heavier. And once that EMI starts cutting into your monthly budget, it can take a toll.
Skipping the Eligibility Step
This is one of the most common errors. Many people apply for a loan without first checking if they’re likely to qualify. Every lender has their own rules. Some look at your income, others at your credit score, and some consider your job stability or how much debt you already have.
Before you apply, always calculate Personal Loan eligibility. It saves time, reduces the chances of rejection, and helps protect your credit score. Several apps and websites allow you to check this without impacting your CIBIL score, which is an added advantage.
Not Understanding the Interest Type
Most people focus only on the interest rate. But that’s not the full picture. You also need to understand how the interest is being applied.
Some loans use a flat interest rate. Others use a reducing balance method. The two are very different. In a flat rate, the interest is charged on the full loan amount throughout the loan period. In a reducing balance, interest is charged only on the outstanding principal, which keeps going down every time you pay an EMI.
Let’s say you’re planning for a Rs. 5 lakh loan EMI over 3 years. A flat interest rate of 12% could cost you more in total than a reducing rate of 14%.
Overlooking Additional Charges
When you think of loan costs, your mind probably goes to the EMI. But what about the rest?
Lenders usually charge a processing fee. Some charge for prepayment. Others may even charge if you decide to foreclose the loan earlier than agreed. These charges might seem small, but they add up.
For example, if you’re borrowing Rs. 5 lakh and the processing fee is 2%, that’s Rs. 10,000 added to the costs. Add GST, and the amount increases further.
Before you sign, ask for a full breakdown. What are the charges upfront? What happens if you want to repay early? Heck for all the costs involved.
Applying to Too Many Lenders at Once
This happens more often than it should. You fill out one application, then another, and then a third, hoping someone will say yes. But each time you do that, the lender checks your credit report. These are called hard enquiries. Too many of these, especially in a short time, make you look financially stressed.
When lenders see multiple enquiries, they wonder why. Are you applying everywhere because you’re not getting approved? Are you in urgent need of funds? It lowers their confidence in your profile and lowers your CIBIL score.
Instead, shortlist two or three options. Use platforms that let you calculate Personal Loan eligibility. This lets you know if you’re likely to get approved, without hurting your credit score.
Taking on an EMI That Doesn’t Fit Your Budget
You get the loan. The money hits your account. And then, from next month, the EMI begins. That’s when reality sets in.
Many people overestimate how much they can afford to repay. Just because a lender is offering Rs. 5 lakh doesn’t mean you should take the full amount. And even if the EMI seems fine now, think about how it fits into your monthly budget once all your other expenses are accounted for.
Let’s say your monthly income is Rs. 45,000, and your Rs. 5 lakh loan EMI is Rs. 17,000. That’s more than one-third of your salary gone each month. Add rent, bills, groceries, and other costs, and you might cut corners or miss payments.
The smarter move? Use an EMI calculator. Try different tenures, play around with interest rates, and find a number that fits comfortably into your routine.
Conclusion
A Personal Loan can be a smart tool when used with care. Avoid rushing; know exactly why you’re borrowing. If you treat the process with thought and planning, a Personal Loan can help you manage your needs without creating new problems. And if you’re comparing platforms, apps like Zype can show offers that suit your salary and credit profile without adding pressure to your score.
