Loan Tips: You will be in deep trouble if you make these 6 mistakes while taking a personal loan..

At some point in life, we suddenly need money. Whether it is a medical emergency, a child's wedding, or a home renovation, at such times, a personal loan appears like an angel. Without pledging anything, with less paperwork, the money is transferred to the account quickly. But wait! In this hurry and ease, most people make some big mistakes, for which they have to pay the price by paying heavy interest for years.

Banks or loan companies will never tell you about these mistakes. Therefore, if you are thinking of taking a personal loan, then remember these 6 things; otherwise, you can really get into trouble.

Mistake 1: Saying 'yes' to the first offer without comparing
This is the most common mistake. People often accept the offer of the bank where they have their salary account, or from where they get the first call. The interest rates of different banks and NBFCs are different. A seemingly insignificant difference of 1% can cost you thousands of rupees.

Simple math

Suppose you need a loan of Rs 5 lakh for 5 years.

Bank A's offer: 12% interest rate -> total interest around Rs 1,67,955.

Bank B's offer: 13% interest rate -> total interest around Rs 1,84,389.

Did you see? A difference of just 1% costs you more than Rs 16,000. So, always compare offers from at least 4-5 banks.

Mistake 2: Ignoring your 'CIBIL score'

Your CIBIL or credit score is your financial horoscope. It tells how you have paid your loan and credit card bills so far. Before giving a loan, the bank first looks at your CIBIL score.

Good score (750+): You will get the loan easily and at a lower interest rate.
Bad score (less than 700): Either your application will be rejected, or you will get a loan at a very high interest rate.

Always check your credit score before applying for a loan. If it is bad, apply only after improving it.

Mistake 3: Not reading the 'fine print' of the agreement (hidden charges)

Don't get happy after seeing the loan offer letter. The real story is hidden in the 'terms and conditions' written in fine print.

Processing fee: This can be from 1% to 3% of the loan amount.

Pre-payment/foreclosure charge: If you want to close the loan before the time, the bank can charge a penalty of 2% to 5% on the outstanding amount.

Late payment fee: A heavy penalty levied on EMI bounce.

Other charges like stamp duty, documentation fee, etc.

Ask about all these charges in advance and read the agreement carefully.

Mistake 4: Taking a loan more than you need
When loans are available easily, people get greedy. If you need Rs 3 lakh and the bank is offering Rs 5 lakh, people think, 'let's take Rs 5 lakh, the rest of the money will be useful'. But a loan is a responsibility, not a lottery. The bigger the loan, the bigger the EMI and the higher the total interest. By taking an unnecessary loan, you tie yourself into a debt for years that you did not need. Always take a loan for the amount you need.

Mistake 5: Getting caught in the trap of 'pre-approved' loans
'Congratulations! You are pre-approved for a personal loan of ₹5 Lakhs - who wouldn't be happy to see such a message or call? But this is a marketing trick.

Understand the game
'Pre-approved' only means that the bank is willing to give you a loan based on your record. This does not mean that you are getting the cheapest or the best offer. It is possible that its interest rate is very high, or there are many hidden charges in it. Before taking any pre-approved offer, compare it with other banks.

Mistake 6: Choosing the wrong loan tenure
This is a big dilemma. If you choose a short tenure, the EMI is high, and if you choose a long tenure, the EMI becomes low. Most people choose a long tenure in the pursuit of low EMI. But this reduces your EMI, but you pay a lot of money to the bank in the form of interest.

Example (Loan of Rs 5 lakh at 12% interest)
3 years tenure: EMI ₹16,607, total interest ₹97,852.
5 years tenure: EMI ₹11,122, total interest ₹1,67,320.
See? By increasing the tenure by just 2 years, you will lose about Rs 70,000 in interest. Always choose a tenure that is neither too short nor too long, according to your pocket.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.