Taking a loan has become quite common these days - be it a personal loan, for business or for building a house. But while taking a loan people make some big mistakes which can spoil their credit score or can get the loan rejected. Here we will discuss the top loan mistakes and best practices which every borrower should follow.
Common Loan Mistakes You Should Avoid
1. Apply without checking your credit score
Many people directly apply for a loan without checking their credit score. A low score can result in the loan being rejected.
Best Practice: Before applying for a loan, definitely check your credit report. Try to maintain a good score (above 700).
2. Submit multiple loan applications simultaneously
When you apply for a loan at 4-5 places at the same time, lenders think that you are desperate, which is a red flag.
Best Practice: Choose a trusted lender and proceed with it.
3. Ignoring Hidden Charges
Many times processing fees, prepayment penalty or annual charges are hidden.
Best Practice: Read the entire loan agreement carefully before signing. Understand all the terms & conditions.
4. Income Proof Mismatch
If your documents and actual income do not match, the loan may be rejected.
Best Practice: Keep accurate salary slips, tax return, bank statements ready.
5. Go for a loan without comparing
In a hurry, people take a loan on any offer without comparing the interest rate.
Best Practice: Compare the APR (Annual Percentage Rate) of every loan. Choose the lowest interest + minimum charges.
6. Looking only at the EMI, not the total cost
Looking only at the monthly EMI is wrong. Calculate the total cost of the loan (including charges + interest).
Best Practice: If you take a long tenure loan, the EMI is less, but the total repayment is more. Find the balance.
7. Making late EMI payments
Being late in EMI damages your credit score and future loans may get rejected.
Best Practice: Set up auto debit or keep a reminder so that the EMI is paid on time.
✅ Best Practices to Get Your Loan Approved Easily
Keep your credit score strong (timely credit card payments, no defaults)
Keep income proof and documents updated
There should be a fixed source of income (salary or business proof)
Use loan eligibility calculator online
Keep collateral ready for secure loans (car, home, FD etc.)
Keep the purpose of loan clear (vacation, medical, business etc.)
💡 Final Tip:
Taking a loan is not wrong, but responsible borrowing is necessary. Avoid mistakes, compare smartly, and take loan only when needed.
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