Personal loans have become easily accessible with just a few clicks on apps. However, this convenience can sometimes turn costly. Many borrowers rush into taking a loan, often relying on pre-approved offers from their existing bank. Experts say the issue is not taking a loan, but making hasty decisions without proper planning. Here are the most common mistakes to avoid:
Many borrowers opt for loans with lower monthly EMI by extending the repayment tenure. While this reduces the monthly outflow, it increases the total interest substantially. For example:
Loan Amount: ₹3,00,000
Interest Rate: 12%
Tenure 3 years → Interest: ₹60,000
Tenure 5 years → Interest: Over ₹1,00,000
Tip: Always check the total repayment amount. Opt for a shorter tenure if your budget allows.
Accepting your existing bank’s pre-approved offer without comparing options is a common mistake. Interest rates can vary 1–2% across banks and NBFCs, which could save you lakhs over the loan tenure. Also consider processing fees (1–3%), GST, and hidden charges. Compare at least 3–4 offers and check your credit score before finalizing.
Many borrowers overlook processing fees, insurance costs, late payment penalties, and prepayment charges. On a ₹3 lakh loan, a 2% processing fee alone reduces the disbursed amount by ₹6,000. Read the loan agreement carefully, understand prepayment charges, and ensure all costs are clear before accepting the loan.
Borrowing without a repayment plan can turn EMIs into a financial burden. Experts recommend:
Setting up auto-debit for timely EMI payments
Maintaining a financial buffer
Preparing a prepayment plan if possible
Take loans only for genuine needs, not desires, to avoid financial stress and protect your credit score.
Summary: Smart borrowing is more than just choosing a low EMI. Compare offers, read the fine print, plan your repayment, and keep total interest in mind. Proper planning now can save you from years of financial strain.
