When you are in need of extra funds, a personal loan can be a helpful option. But before you apply for a quick loan, it’s important to understand the common issues that personal loan customers face. By being aware of the potential pitfalls, you can make an informed decision and choose a loan that’s right for you.
What are the problems faced by borrowers during a personal loan?
1. Hidden Fees
Many personal loan providers will charge fees that are not clearly stated in their promotional material or website. These hidden fees can add up over time and the loan can cost you more than you expected. Some common extra charges include application fees, late payment fees, and prepayment fees.
When you first apply for a personal loan, you may be charged a one-off application fee. This varies from lender to lender. If you miss a loan repayment, you may be charged a late payment fee. This is either a fixed amount or a percentage of your EMI. If you want to repay your loan early, you may be charged a prepayment fee. This is often a percentage of your outstanding loan amount.
How to avoid them: It’s important to read the fine print carefully before you agree to any loan, so that you know exactly what you’re paying for. If you feel any part of the loan agreement is ambiguous or confusing, don’t hesitate to ask your lender questions.
2. Inflexible Repayment Terms
Some personal loan providers will require you to repay the loan within a certain time frame, regardless of your financial situation. If the repayment tenure is too short, you may feel a cash crunch as you try to pay off the loan. If you miss an EMI or make a late payment, this will not only cost you a late fee but also reflect poorly on your credit report. This can make it difficult to manage your finances and may end up causing you more financial stress.
How to avoid them: Read through the repayment terms and be certain that you can afford the repayments. Opt for a lender that offers flexible repayment schedules and requests a longer loan tenure if it suits you better.
3. EMI Management
When you take out a personal loan, you agree to repay the loan over a set period of time. You must repay your loan at the agreed-upon monthly instalment and interest rate when you have gotten loan approval.
Many borrowers apply for a quick loan without considering their other financial commitments, such as their mortgage, credit card repayments, utility bills, and other regular expenses. This affects their ability to make the payment on time which decreases their loan eligibility in the future.
How to avoid them: Maintain a sensible budget, keep your spending in check, and pay your EMI before any other debts. Set aside an emergency fund to help you pay back the loan in case of any change in your financial circumstances.
4. Loan Eligibility
Lenders use a strict set of criteria to assess loan applications to determine whether the applicant is a good fit. If you do not meet the criteria, your application will not be approved.
There are a few reasons why you may not be eligible for a loan. The most common reason is that you have bad credit. Lenders use your credit score to determine your creditworthiness, and if your score is low, it will be difficult to get a loan. Another reason you may not be eligible for a loan is if you don’t have a steady income. Lenders want to see that you have a steady source of income so that they can be sure you will be able to make your loan payments. If you are self-employed or have a fluctuating income, it may be difficult to get a loan.
How to avoid them: Check a lender’s loan eligibility requirement before applying. If you do not meet the criteria, work to improve your credit score or income and apply again.
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