Instant digital credit has changed the way people borrow in India. It has shifted away from the traditional forms of borrowing people faced in the country. Thanks to smartphones, digital KYC via Aadhaar, and faster payment systems, there is no need to visit a bank branch or wait for several days for approval to borrow money. The instant personal loan app has gained immense popularity among salaried professionals, self-employed individuals, and first-time borrowers. These applications offer convenience and speed, but speed is never a substitute for good financial sense.
In this post, we will discuss a few mistakes to avoid when applying for instant personal loan apps.
How to Avoid Mistakes When Using an Instant Personal Loan App?
Recognising these errors early in the use of digital credit may allow you to use the app healthily and keep long-term financial stress at bay.
Table of Contents
1. Applying Without Knowing the Meaning of Instant Personal Loan App
An instant personal loan app is one such digitally accessible platform that offers personal loan services without having to hand over any collateral, along with prompt disbursal after the loans have been sanctioned. Although this process is swifter than taking a physical bank loan, it is still an entry into a financial instrument.
App-based loans are significantly different from traditional bank branch loans, where a lot of discussions, explanations, and paperwork happen before funds are finally disbursed. Misunderstanding the loan as a type of interest rate, type of tenure, penalties, etc., may create repayment stress in a later stage. Make sure you understand the product and then step forth.
2. Opting for Unauthenticated or Non-compliant Loan Apps with the RBI
Checking the compliance of loan apps with RBI partners, including NBFCs, is essential as a precautionary measure for borrowers. These unregulated platforms can also put users at significant risk, including the potential for data misuse and undisclosed charges.
How do you know a loan app is safe?
Ensure that the lender is either registered with the RBI or has a tie-up with an NBFC that is regulated, look up official websites properly, and read app store reviews carefully. An authentic instant personal loan app will never beat around the bush; it will always specify its lending partners and grievance redressal.
3. Taking Out More Than You Actually Need to Borrow
Some apps present a range with your “maximum eligible amount,” which can entice borrowers to take out larger loans than they really need to. This trick results in an increased EMI amount and an extended repayment period burden.
A financial services advisor would have told you the loan should only be as much as you need and not the maximum the lender will provide. Disciplined borrowing, if you are borrowing through apps or comparing personal loans online, plays a crucial role in staying financially sound.
4. Avoiding Interest Rates, Fees, and Hidden Charges
While the interest rate is a component of the cost of borrowing, all these processing fees, GST, penalties for late payment, coupled with the foreclosure charge, can increase the total amount that the borrower will end up repaying.
While low advertised interest rates appear to be desirable, if additional costs are not mentioned upfront, the rates can be deceptive. Borrowers must go through the Key Facts Statement before accepting the offer on an instant personal loan app.
What are the charges you need to look for before taking a loan?
Interest rate, processing fee, GST, late payment penalties, bounce charges, and prepayment fees.
5. Not Assessing Loan Tenure and EMI Manageability
One of the biggest mistakes is choosing the wrong tenure. While short-term loans might help reduce interest outgo, they may lead to higher EMI payments. Extended tenures reduce EMIs, but increase total interest outgo.
A good rule of thumb is to make sure the EMI is a fraction of your earnings. Overlooking affordability when choosing tenure on an instant personal loan app can quickly send your budget out of control and into default.
6. Multiple Loan Applications at the Same Time
Certain borrowers send applications to multiple apps at once to make sure their applications get approved. In reality, this can backfire. Every application will put an enquiry on your credit profile, and whilst one or two in a short space of time won’t make a difference, it will drag your score down.
The more intelligent way to get instant personal loans for your needs is by comparing the features, interest rates, and terms first, and then aligning yourself with the one you trust the most as a personal loan app that fits in with your profile.
7. Ignoring App Permissions and Data Privacy
As digital lending often requires personal and financial data, excessive access is a red flag. Privacy breaches are often in the form of access to contacts, media files, or extra phone data.
A safe instant personal loan app will only seek permissions that are mandatory and will use encrypted systems for handling digital KYC and storage of data. Make sure to review permission requests carefully before continuing.
8. Missing EMI Payment Deadlines
So if you delay in paying the EMI, penalties are charged, and it can affect your credit score negatively. Late fees and compounding interest add to the total amount owed on the loan over time.
Habits such as setting reminders, activating auto-debit mandates, and keeping some money always available in your account manage to act as safety nets that contribute to your timely repayment. Also, make sure that your financial credibility stays intact.
9. Using Personal Loans for Non-Essential or Recurring Costs
These loans must be utilised for significant or productive essential needs like educational needs, medical emergencies, or urgent expenditures. Repetitively using them for discretionary spending increases reliance on credit.
While an instant personal loan app provides numerous benefits, if the borrowers depend too much on it, they put themselves at risk of entering a debt cycle from which they will be hard-pressed to escape. But wise use is responsible use, and it is the only way to long-term financial health.
10. No Backup Plan for Repayment Issues
Jobs, health problems, and a slow-moving business can all lead to disruption in your income. One of the mistakes that borrowers make is that they do not consider any contingency measures.
If loan repayment proves difficult, reach out early to lender support. These include options such as rescheduling EMI or short-term relief offered by multiple regulated lenders. In fact, proactive communication can help avoid defaults and long-term credit damage.
Final Words
Personal loan apps are undeniably convenient, but one should never be in a rush to borrow. Making even the smallest mistake, picking an unverified lender, ignoring the fine print on different charges, borrowing more than needed, or missing your EMIs, can spoil your financial health.
Digital lenders like Stashfin provide safe digital loan delivery through a regulated app experience that prioritises the safety and flexibility of borrowers. Use instant loans as a tool, not a habit, and always choose the long-term option before hitting the apply button.