7 Mistakes That Can Turn Your Personal Loan Into A Burden | Business News

Taking multiple loans at a time can lead to a debt trap.(Representative Image)

In India, many people rely on personal loans to cover major expenses like sudden medical bills, educational fees, home renovations and weddings. Thanks to easy accessibility, banks now offer online loans with approvals in just minutes. However, while personal loans can be helpful, they carry risks. Misuse or lack of proper knowledge can quickly lead to debt and harm your financial health. Being aware of common costly mistakes is essential to avoid these pitfalls.

Not Checking Credit Score

One of the biggest mistakes people make while applying for a personal loan is ignoring their credit score. Not reviewing it beforehand can increase the chances of rejection during the approval process.

It is always advisable to check your credit score before approaching a lender. A higher score can help you secure fast approvals and more favourable interest rates, while a lower score may result in delays or even denial of the loan.

Taking Multiple Loans At A Time

Taking multiple loans at a time can lead to a debt trap you might not even realise, until you find yourself stuck in the middle of it. Borrowing more than you can comfortably repay or taking a loan with unfavourable terms can backfire. Mismanaging the loan may lead to excessive fees and even harm your credit score.

Ignoring Interest Rate

Many borrowers fall into the trap of unwanted loans based on advice from loan agents. To avoid this, never commit to a loan without properly comparing rates. Even a small difference in interest rates can have a significant impact on your total repayment over time.

Ignoring The Fine Print

Personal loans come with brochures detailing terms and conditions, interest rates, processing fees, tenure, and repayment schedules. Reading the fine print is crucial, as hidden costs, prepayment penalties, and extra charges can substantially increase the total loan cost if ignored.

Never Skip Or Delay EMIs

Avoid taking a personal loan if you cannot make timely repayments. Missing EMIs can lead to penalties, harm your credit score, and damage your credit profile. In extreme cases, it may even result in legal consequences.

Lying on your loan application

Always provide accurate information when applying for a loan. Overstating income or omitting details may seem tempting, but it can backfire. Lenders may cancel the loan, demand immediate repayment, or take legal action. In cases of fraud, it could even result in criminal charges and imprisonment.

Don’t Take Loans For Non-Essential Expenses

Personal loans should be reserved for genuine financial needs and emergencies. They should never be used for discretionary spending such as vacations, luxury shopping, or other non-essential expenses. Loans are best utilised for unavoidable costs or productive purposes that provide long-term value.