10 Common Mistakes to Avoid When Applying for a Loan

When it comes to applying for a loan, people make several common mistakes that can harm their chances of being approved or result in them receiving favourable loan terms. Some of the most common mistakes to avoid when applying for a loan include:

1. Not checking your credit score before applying:

Your credit score is the first thing that is checked by Banks or credit agencies  when deciding whether to approve your loan application as it reflects your credit history and credit worthiness. Having a good cibil score that is close to 700-750, allows you to get a loan at lower interest rate. That’s why it is advised to keep track of your cibil score, it also helps you in finding errors in your cibil report if there is any .You can get if fixed by raising a dispute on credit bureau.

If you are having a poor credit score,still you are looking forward to applying for a loan .Read our blog on how to get a loan with a bad credit score.

2. Applying for too many loans at once:

Applying for multiple loans simultaneously can harm your credit score and make you appear desperate for financing, which can turn off lenders. Making Hard credit enquiries within a short period of time may reduce your credit score by 5 to 10 points after every credit inquiry. So do not try to apply for loan in different banks/NBFCs at the same time.

3. Not having any solid repayment plan:

Lenders always ask your purpose of loan and check if you are able to repay it on time. You must have a clear repayment plan before applying for a loan and there should be a balance between the loan amount and your earning. Never apply for a loan you can’t repay on time or which is out of your repayment capacity.

4. Failing to shop around for the best loan terms:

When you are applying for a loan, don’t just go to a recommended bank or any loan offer you received first. Doing so may cost you thousands. Different banks/NBFCs have different loan offers, policies and Interest Rates. Shop around and compare the most suitable loan for you. Interest rates, loan tenure, processing fees and foreclosure facility are some key points to consider before applying for any kind of loan.

5. Lying about your actual Income and expenses

Lying on a loan application can be really dangerous. If you’re doing it willingly, which means you are committing fraud. Mostly trusted Creditors always verify your documents such as your ID, income proof, bank statement, residential and work address etc. Unfortunately, there are borrowers who show the wrong details in their documents. If the lender finds any fraud after loan approval, he may ask for full repayment and may file a fraud case against you. It may affect your chances of getting a loan in future also.

6. Not understanding the terms of the loan:

Before accepting a loan, make sure you have specified the loan terms, and have read and understood all the terms and conditions of the loan, including the interest rate, loan tenure, monthly payments, repayment schedule, and any fees or penalties.

7. Not having required documentation:.

Lenders typically require several documents to verify your Identity proof, salary slip, bank statement, business registration proof, property papers and other information. Failing to provide all required documentation can result in delays or even loan rejection.

8. Applying for the wrong type of loan:

There are different types of loans available, each with its own eligibility requirements and terms. Shop around and find the best loan which fulfils your actual requirement Applying for the wrong type of loan can result in rejection or unfavourable loan terms.

9. Ignoring your debt-to-income ratio:

Lenders consider your debt-to-income ratio when deciding whether to approve your loan application. If your debt-to-income ratio is too high, it can harm your chances of being approved.

10. Failing to make timely payments:

Once you have been approved for a loan, it’s important to make timely payments to avoid late fees and negative impacts on your credit score. Also don’t go for settlement if you can’t repay on time,  It makes you a defaulter and it reflects in your cibil report as well.

Conclusion

By avoiding these common mistakes when applying for a loan, you can increase your chances of being approved and ensure that you receive favourable loan terms that meet your financial needs.