The festive season in India is synonymous with celebrations, shopping, and big-ticket purchases. Many young families choose personal loans to help manage these additional expenses instead of stretching their budget. While personal loans offer quick disbursals and immense convenience, we must use them cautiously. Here’s a look at the top mistakes to avoid while taking a personal loan this festive season.

Top Financial Mistakes to Avoid While Taking a Personal Loan This Festive Season

Ignoring Eligibility Criteria

One of the most common mistakes borrowers make is applying for a loan without checking the eligibility criteria. Each lender has its own set of requirements, such as age, income, and credit score. Applying without qualifying could lead to unnecessary rejections that negatively impact your credit score. Ideally, a high credit score, a steady income, and valid ID and documents will help you meet every lender’s eligibility criteria.

Falling for High Loan Offers

More isn’t always better when it comes to borrowing. Some lenders may offer higher loan amounts than you need. It’s crucial you borrow only what you can comfortably repay. Taking more than required can lead to difficulties in managing monthly EMIs, and failure to repay on time will affect your credit history and future borrowing potential.

Pro Tip: Your EMI should not exceed 10% of your monthly income. Low EMIs keep your budget manageable and help you maintain your financial stability.

Opting for Loans from Unverified Lenders

There’s been a considerable rise in the number of lenders promising favourable lending terms through smartphone apps. These illegal and fraudulent loan applications often lead to financial troubles in the future. Always ensure the lender is registered with the RBI and holds the necessary approvals for lending activities.

Choosing a Longer Tenure for Lower EMIs

A longer loan tenure often seems like a good deal because it lowers your monthly EMI amount. However, the longer you take to repay, the more interest you will pay over time. Aim to find a balanced tenure that keeps EMIs affordable without extending the repayment period.

Overlooking the Fine Print

In the midst of the festive fervour, you may rush through the application process and overlook the fine print. Always read the loan terms carefully and check for hidden charges like processing fees, prepayment penalties, or late fee payments that could inflate the total cost of the loan. Familiarise yourself with all the terms and conditions before proceeding. HDBFS provides a Key Fact Statement that clearly explains loan terms. It has key information regarding a loan agreement, including the all-in-cost of the loan, in a simple and easy-to-understand format.

Applying for Multiple Loans at the Same Time

While it might seem like a good idea to apply to several lenders at once to increase your chances of approval, doing so can harm your credit score. Each time you apply for a loan, it triggers a credit inquiry, which can temporarily lower your score. Multiple inquiries in a short time can make you look like a credit risk. Limit your applications to avoid unnecessary credit checks.

Not Comparing Loan Offers

Interest rates and terms can vary widely between lenders. One of the most significant mistakes people make is settling for the first lender they find. Even a minimal difference in interest rates can lead to a significant financial burden over time. Take the time to compare interest rates, processing fees, and other charges across multiple lenders to ensure you’re getting the best deal.

Taking a personal loan during the festive season can be a smart way to manage expenses, but it’s essential to tread carefully. By avoiding these common mistakes, you can ensure a smooth borrowing experience without derailing your financial health.

HDB is an RBI-registered and trusted lender. We offer seamless personal loan processes, enabling you to apply online and get quick disbursals to help you meet all your festive financial needs. Visit the HDB website today and apply online to explore financing options that fit your needs.