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Personal Loan Tips: Avoid these 5 mistakes to prevent high interest burden and repayment stress
- •Don't take a loan solely based on low-interest rates; check processing fees and other charges.
- •Avoid borrowing more than necessary; interest accrues on the entire amount, increasing financial burden.
- •Do not extend loan tenure just to lower EMI, as this significantly increases the total interest paid.
- •Check prepayment and foreclosure charges before signing; these can be substantial if you repay early.
- •Avoid applying to multiple banks simultaneously, as this can negatively impact your credit score.
Key Questions Answered
A lower headline interest rate does not always mean a cheaper loan because lenders may levy additional costs like processing fees, documentation charges, file charges, and administrative expenses. If these hidden charges are high, the overall cost of borrowing increases significantly.
Extending the loan tenure reduces the monthly EMI payment, making the loan seem more affordable initially. However, paying interest over a longer period means the total amount paid to the bank across the entire duration becomes much larger.
Applying for a personal loan across multiple banks or apps on the same day triggers multiple hard inquiries on your credit report. Lenders may view this as desperate borrowing behavior, which can negatively damage your credit profile and complicate future loan processes.
