Mistakes borrowers make

Withholding information and improper documentation are a few

The only man who sticks closer to you in adversity, more than a friend, is your creditor”. This adage holds true in today’s world more than ever before. Whether you are a student, a working professional, a business enterprise or a retiree, there are various institutions available today to cater to your financial needs.

With so many options , how would you decide the best-fit approach for your financial needs? Would you approach offline and traditional players such as banks and retail financial institutions, personal lenders, family or friends, or online players offering a variety of loan-based services in the digital space?

Further, what factors can lead you down the wrong path? Let’s explore some common mistakes most first-time loan seekers make.

Thanks to the Internet, the information that you need is abundant. However, it is up to you to not just compare and shortlist, but to also do extensive research among various loan options available. Whether you opt for a traditional institution such as a bank with established lending mechanisms or an online lender with innovative lending models, depends on how well you educate yourself about these options.

There are pre-qualified loans from established players, but there are also new and emerging, short-term lending options that might help you. Do not get locked into schemes that confuse you and pinch your wallet with hidden fees, servicing costs, terms and conditions and unfavourable exit clauses. Understand the fine print, risks, if any, and seek the necessary clarification before signing up.

No defined process

All lenders and creditors tend to follow standard processes and paperwork. Provide the right information, complete the necessary paperwork and understand the loan application process. A common mistake first-time loan applicants make is to hold back their existing debts and financial information. It is also better to avoid approaching too many lenders in a scatter-shot manner. This could affect your credit score and you may be deemed “credit hungry”. Ensure that your credit history is healthy, and you do the documentation right to getloans smoothly and efficiently.

No balance in EMIs

To get quicker loans with a longer repayment tenure and lower EMIs, most loan applicants tend to miss the “trees from the forest”. Understand the interplay between interest rates, tenure and repayment. Sometimes opting for higher EMIs might be more beneficial than long-term lower EMIs.

About 95 per cent of loan seekers do not understand that with longer tenures, the fringe costs eat up savings when compared to a shorter tenure. A simple six-month personal loan on a higher EMI through one company might save you more than 25 per cent of eventual costs when compared with a three-year tenure at another.

Value of time saved

Borrowers usually forget to add the price of time spent to the cost of loan. Online sources are revolutionising the lending space with efficient documentation, use of analytics and customer-friendly methods. The proof is, traditional banks have a slower credit offtake, while NBFCs and online lenders are slowly capturing many lending segments and showing aggressive growth.

Lower costs, negotiate well

Never borrow more than what you need. Smart decisions around borrowing can benefit you immensely. Gone are the days when you were subject to specific lending models that were largely one-sided, longer-tenured and tied-down to archaic policies. Today, there are several offline and online players who cater to new-age loan applicants with just-in-time documentation, easy repayment schemes with shorter tenures and good customer experience. A diligent approach to loan application can ensure a high success rate and give you the much-needed peace of mind.

The writer is founder, StashFin

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