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6 Mistakes to avoid before applying for personal loan
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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If you have a regular income then it is very likely that you frequently receive calls from banks offering you personal loans, right? You may or may not be looking for a loan right now, but if you need one, it does not hurt to be aware of some very common errors. These mistakes often lead to either a rejection of your loan application or you not selecting the best loan option available in the market. So, to save yourself from getting into a ‘vicious’ loan cycle, or getting your loans disapproved, just take care of the following points.
Do not apply without comparing
One of the most common mistakes people make when applying for a personal loan is to go to the bank that they frequently transact with. But while that seems like the easiest option, it is important that you do your research and make an informed decision. Assess the pros and cons of all the banks that you can study, and find one that best suits your needs.
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Always be clear with the bank about why you want the loan
Another common mistake is — not explaining to the bank the purpose for which you are taking the loan. Often, potential borrowers are unable to explain their income and outflow in a manner that the bank expects from them. Whenever you approach a lender for a loan, try and explain to the best of your abilities why you need the loan and how you plan to use the funds, and even how you plan to repay the loan. Don’t worry – the bank representative will guide you about the format in which this information needs to be conveyed. The clearer you are about your motives and your financial planning, the more confident the lender will be about you.
Be sure about the loan amount that you need
It is important that you are absolutely sure about the amount of loan that you require. When you go to a lender, do not give them a range (say Rs. 5-7 lakhs or close to Rs. 8 lakhs). You need to ask the lender for the exact amount that you need. When you quote a range, it tells the bank that you have not clearly thought through your loan application. Because you are not sure about how much you want, the lender could take it as a signal that you may not know how to pay it back!
Remember that your credit history affects your financial future
Lenders investigate and analyse your credit history to see how you have managed your finances in the past. If you have maintained a good financial track record, especially in terms of fulfilling your financial responsibilities, you are likely to have a good credit score. A good credit score indicates an impressive credit history and plays a vital role in the loan-approval process and in the rate of interest that the bank will charge. If lenders are convinced that you manage your finances diligently, they will be eager to lend you money.
Never hide your existing loans
Always disclose the loans that you are in the process of repaying. Hiding such information from lenders may seem tempting, or you would believe that it furthers your cause, but in reality, it will only make it difficult for you to get a loan. Lenders will find out about your existing loans when they check your credit history. Forging documents or falsifying information will lead to an immediate rejection of your loan application and may even result in legal prosecution.
Never sign blank documents
Well, this applies to anything in life, not just your loan-application process. While applying for a loan, you usually begin to meet the lender's representatives and invariably you begin to trust this person. Even so, be careful about being asked to sign blank documents or application forms – you may be under the impression that the executive will fill in the details later, but you could be stepping into a potential scam! It is very important that you stay involved in every step of your loan process, including filling up those forms.
Disclaimer: This Article is for information purpose only. The views expressed in this Article are personal and do not necessarily constitute the views of Kotak Mahindra Bank Ltd. and its employees
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