How much money should you borrow from a financial institution while applying for a loan? This is one of the most puzzling questions that borrowers face when they have to take a personal loan. If you choose a big amount that is more than you need then it can lead to additional interest fees and other charges. Choosing a small amount that is lower than you require will defeat the purpose of taking a loan and you might have to seek additional financial assistance. Out of these two situations, the latter is trickier as you will not have enough money on your hands to meet your obligations.
Mistakes to Avoid While Choosing a Small Personal Loan:
Here are some of the most common mistakes that people make while applying for a small personal loan. The below-mentioned mistakes must be avoided if you want to stay financially prudent.
- Not conducting your research
Most borrowers seeking a small loan amount don’t have alternatives to fund their current expenses and this is why a loan seems like the best option. It is highly recommended that you conduct your research before applying for a loan from anywhere. You must compare different lenders and interest rates offered by them to find a suitable one for your needs. Trustworthy financial institutions like Fullerton India offers a wide range of loan-related products that you can choose from.
- Not knowing your credit score
One thing that almost all financial institutions ask for while accepting a loan application is your credit score. A credit score is a quantitative measure of a borrower’s creditworthiness. It helps lenders to know about their credibility and repayment history. It is a tool deployed by modern-day financial institutions to filter out bad borrowers. In India, a CIBIL score of over 700 is considered as good. A score over 750 is regarded as very good and all borrowers must strive for a credit score over 750 to get a loan instantly. Not knowing your credit score can make it difficult to assess if you are eligible for a loan.
- Not providing all necessary documents
Not keeping essential documents required for loan processing can lead to unnecessary delays. While submitting your loan application, you must try to submit all the required documents including address proof, credit score, ID proof, income proof, etc. It increases the chance of your loan approval no matter how small your loan amount is. Being careless about your documentation can lead to the rejection of your loan. Institutions like Fullerton India have the least documentation requirements for loan processing. You just need to have a digital copy of the address proof, ID proof, income statement, etc. to make your loan application.
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- Choosing the wrong tenure
When the loan amount is small, people often commit the mistake of choosing a smaller loan tenure. A very small loan tenure comes at a cost of high EMIs so you must plan out your EMI budget before you apply for a loan. One can easily check their monthly EMIs for different types of loans online. Sometimes people also make the mistake of choosing a very long tenure for a smaller loan amount, which leads to a higher interest cost. Planning your EMIs after calculating the interest charges is highly recommended even for a small amount loan.
- Overlooking the fees and other processing charges
Most people often assume that they only have to pay the interest amount in addition to the capital for loan repayment. They fail to take into account other necessary charges associated with a loan. No matter how big or small your loan amount is, a processing fee will be levied by the lender. You must check for these charges before applying for a loan. Most reliable financial institutions have a transparent process where they inform borrowers about all related charges. However, you must make an effort to learn about these things by yourself. Besides processing charges, also find about prepayment fees for different types of loans.
