- 5 mistakes to avoid when taking out a Personal Loan
- 1. You don’t do your homework
- 2. You settle for a high interest rate
- 3. You ignore your credit score
- 4. You forget to make repayments on time
- 5. You don’t consider your budget
- “Mistakes were made” doesn’t have to be your loan's story
- The 5 Biggest Mistakes People Make When Applying for a Loan
- Loan Mistake 1: Not Checking Your Credit Score
- Loan Mistake 2: Not Researching Multiple Offers
- Loan Mistake 3: Lying About Your Income and Expenses
- Loan Mistake 4: Submitting Multiple Loan Applications at the Same Time
- Loan Mistake 5: Not Examining the Terms and Conditions
- 8 Common Mistakes First-Time Home Buyers Make, According to Chris Hogan
- Buying a Home When You Have Debt
- Not Saving Enough for a Down Payment
- Buying a House You Can’t Afford
- Allowing the Market to Dictate Your Moves
- Not Getting Preapproved
- Getting the Wrong Kind of Mortgage
- Choosing the Wrong Lender
- Cosigning Your Mortgage
- The biggest mistake to avoid when taking out a personal loan
- Why rate shopping makes a difference
- The benefit of rate shopping: an example
- The difference between rate shopping and applying for multiple accounts
- The bottom line
- 7 Personal Loan Mistakes To Avoid This Season
- #1 Focusing Only on The Monthly Payments
- #2 Not Checking Your Credit Report First
- #3 Using or Applying for Credit Shortly Before Getting A Loan
- #4 Making Late Payments
- #5 Not Budgeting for The Loan Payments
- #6 Applying For The First Loan You Find
- #7 Overlooking The Fine Print
- Personal Loan Mistakes: The Bottom Line
5 mistakes to avoid when taking out a Personal Loan
Posted July 2017 by Melissa Abraham-Smith
Mistakes. Big or small, you've probably made a few. In fact, I'm sure we all have! But while they may help you grow, learn, or improve, financial mistakes almost always end up costing you money. That's a costly way to learn a lesson.
From how you pay off your debts through to risky shares or investments, the financial world is littered with mistakes just waiting to happen. Even the seemingly simple act of applying for a loan or personal finance can be full of hurdles that could see you trip, fall, and lose more than a little spare change in the process.
Worried? Don't be! Today we're taking a look at the 5 most common mistakes you could make when taking out a personal loan, and giving you some go-to tips and tricks that will help you avoid them.
So if you’re thinking of applying for a personal loan, spending a little time learning from others' mistakes could save you from spending a whole lot of money in the long run.
Up first, it’s the all-important research…
1. You don’t do your homework
No one s homework. Didn't you escape those long days and late nights when you got older and left school behind? When it comes to finding a great loan, a little homework can actually go a long way to saving you money.
There's an awful lot of choice out there, so taking the first loan that comes your way is the first mistake you need to avoid. It's hardly ever a good idea! Instead, 'don your investigator cap, go digging, and do some research. You'll quickly turn this overwhelming amount of choice back in your favour.
When you're choosing a lender, be prepared to shop around, consider the terms & conditions, repayment options, and even rates and fees. These can all vary wildly between the various New Zealand financial institutions, so take your time to compare them properly.
If this all sounds too difficult, there are ways you can make it easier.
You don't have to put in the literal leg work of wandering between every bank, credit union, or financial institution in your area. Nowadays, you can simply jump online and use sites finance.co.
nz to compare your options, or turn to an independant third-party Canstar for their expert analysis and recommendations.
Sure, they might say 'time is money', but spending a little of the former could save you a whole lot of the latter in the long run.
2. You settle for a high interest rate
Competitive fees, terms & conditions, and other extras are all well and good, but no matter how nice they sound, you should never settle for a high interest rate. There's just no need! And yet it can be all too easy to lose sight of the rate you're actually going to end up paying.
When looking for a loan, consider what you'll be using it for. Maybe you'll be putting it towards consolidating your personal debts? Financing a new or used car? Throwing the perfect wedding? Once you know what you'll be spending it on, you can track down a loan that fits the bill and still offers a great rate.
If you’re comfortable securing your loan with a personal asset, then maybe secured finance is your best bet. If that all sounds a bit risky, there are still some highly competitive unsecured loan rates available to you. All you need to remember is that there's always a better rate just around the corner. You just need to be willing to look for it!
3. You ignore your credit score
It’s true! Your credit score can have an impact on your loan application. At best this will affect your chances of achieving a low finance rate, and at worst could see your loan application being rejected outright.
Some financial institutions do offer finance for people with bad credit, but it’s still a good idea to check your credit score first. You can do this quickly and easily online, and get the information you need to take action.
If your credit score is good? Then you’ve got nothing to worry about. Simply track down the best provider, submit your online loan application, and then sit back and relax knowing you’ll soon be freed up financially to embrace that next step in your life.
If you find that your credit score is poor? Don’t worry. There are a number of ways you can improve your credit score before applying to a lender. By taking these steps you'll ensure you’re doing everything you can to land a low rate and maximise your approval chances.
4. You forget to make repayments on time
The loan process doesn’t end once you've been given the tick of approval. At some point, you’re going to need to pay the money back. This might sound simple, but you’ll be surprised at just how easy it is to forget.
This mistake is especially common if this is your first time applying to a lender! While a seemingly harmless mistake, missed payments are often recorded in your credit history, which could adversely affect your credit score and your chances of landing another loan in the future.
If you know how to manage utility bills or credit card repayments, then chances are you'll be fine. Simply treat your personal loan in the same way. Mark payment dates in your calendar, throw a reminder on your phone, or better yet, set up an automatic transfer via online banking so that the payments take care of themselves. It's that simple!
5. You don’t consider your budget
What are you planning on using this money for? Paying off medical bills? Maybe repaying those nagging debts? A loan may offer you exciting possibilities or help you a rough financial situation, but it also leaves you with an outstanding debt and interest to repay.
It can be all too easy to get caught up in the loan pre-approval process, and find that you haven't asked – or answered – the most important question of all: will you be able to repay it?
Borrowing more money than you can afford can quickly see your expenses spiralling control, which is the last thing you want. Instead, check your budget, add the repayments, and run the numbers. If the application is successful, will you be struggling to keep your head above water? Or will you be able to manage it easily?
Ideally, any personal loan repayments shouldn’t come to more than 15-25% of your income. If it’s more than that, it might be time to consider other ways you can get the money together. Perhaps you could open a savings account or find ways to save a little extra cash.
“Mistakes were made” doesn’t have to be your loan's story
We all make mistakes. They’re a part of everyday life. But when it comes to money, you don’t have to make mistakes to learn some good lessons. Take it from us. By doing your research, checking your credit score, and making sure you’ve budgeted for the repayments, you’ll be able to make the personal loan application process pain free and get on with living your best financial life.
The 5 Biggest Mistakes People Make When Applying for a Loan
There’s always something a little intimidating about applying for a loan. Maybe it’s the thought of having a stranger look at your financial life. Maybe it’s the fear that you’ll be turned down.
The truth is that applying for a loan doesn't have to feel scary. There are some common mistakes that many people make when applying for a loan, especially if it’s their first time. But knowing what they are and how to avoid them will provide you with an experience you can feel confident with.
Loan Mistake 1: Not Checking Your Credit Score
When you apply for any loan, the first step should always be to check your credit score. This number is your credit history and current debt levels, and it gives a lending advisor an idea of how trustworthy you are as a borrower. If your credit score is low, you won’t get a good interest rate—and you might have trouble getting approved at all.
While you can get a free copy of your credit report once a year from any one of the Big Three credit reporting companies (Experian, Equifax and Transunion), you can also check it for free by logging into your First Alliance mobile app or online banking account.
If your credit score is 600 or less, you should consider taking anywhere from six months to a year to improve your credit score before trying to get a loan.
Pay off your outstanding bills, pay down your debts and make sure you’re paying your existing bills on time. Doing so will set you up to qualify for a better interest rate, which will save you money.
Pay down existing debt will also help you to better afford the payments on a new loan.
Loan Mistake 2: Not Researching Multiple Offers
When you’re looking for a loan, you don’t want to take the first offer you get. Doing so could cost you hundreds, if not thousands, of dollars.
Different financial institutions have different terms on their loans, ranging from the interest rate to the loan’s term to the fees they charge. You’ll want to shop around and compare what each institution has to offer. Make sure to pay attention to these loan features:
- Interest rate—how much interest will they charge you?
- Fixed or variable Rate—will the interest rate on the loan change or will it stay the same?
- Loan term—how much time will you have to repay the loan?
- Fees—what will the credit union or bank charge you to set up the loan?
- Flexibility—can you pay off the loan early without paying a penalty?
If the financial institution your researching isn't willing to provide you answers to these questions, its best to cross them off the list and find one that is willing to be transparent and answer all your questions.
Loan Mistake 3: Lying About Your Income and Expenses
This is without a doubt the worst mistake you can make. While you might be tempted to fudge the details about how much you make and how much you owe, this is technically considered fraud. If a lending advisor realizes you’ve misrepresented this information, you can rest assured you won’t get the loan.
Worse, if a lender realizes you’ve lied about your income and expenses after you’ve gotten the loan, they have the right to demand immediate repayment. They’ll probably also alert the authorities that you’ve committed fraud, and you will face criminal charges.
Even if the lending advisor never finds out, you can still get into serious trouble.
The biggest reason a lender wants to know about your financial situation is so they can give you a loan which you won’t have trouble paying off.
While this might be frustrating if you had your heart set on buying a new Ferrari but only got enough money for a used Chevrolet, you can take comfort in knowing you’ll be able to afford your loan payments.
Loan Mistake 4: Submitting Multiple Loan Applications at the Same Time
This is an understandable mistake to make. After all, if you’re trying to rent an apartment or buy new insurance, sending out multiple applications just makes sense.
Applying for a loan, however, is very different. Each lender you apply to will make a hard credit check as part of the application process, and each hard credit check lowers your credit score by a few points. If you apply for a loan at four or five lenders, your credit score could drop up to 20 points!
Instead, focus on one lender at a time. If you don’t get the loan you want, you might want to reassess your financial situation before trying again. This is also why it's important to research lender before you submit an loan application.
Loan Mistake 5: Not Examining the Terms and Conditions
Nobody s reading terms and conditions. They’re long, boring and filled with technical language you may or may not understand.
However, you need to read the terms and conditions of any loan for which you have applied. It won’t be fun, but you need to know what you’re getting yourself into.
When you read the terms and conditions of the loan, you’ll have one final chance to look over the loan terms, as well as any fees you might have to pay for missing a payment or paying off the loan early, as well as any options you have if you encounter financial hardship. Remember, you’ll be paying off this loan for months, if not years, so you need to understand the rules now.
When you apply for a loan, you want to make sure to get the process right. Avoiding these mistakes may not help you get the exact loan you want, but they will make the loan application process a lot easier.
You can also make sure your application process easier when you when you become a member of First Alliance Credit Union today. Our experienced lending advisors will help you through the loan application process and make sure you get an auto loan that works for you.
8 Common Mistakes First-Time Home Buyers Make, According to Chris Hogan
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Buying a home is stressful — especially if it’s your first time.
In fact, about 40% of first-time home buyers said it was the most stressful event of their entire lives, according to a 2018 survey by Homes.com.
It’s no wonder. Traps abound, from choosing the wrong mortgage to taking on too much debt.
“It’s the American dream. You get excited.
But you need to be prepared for it,” says Chris Hogan, a personal finance expert at Ramsey Solutions, the financial counseling and education company founded by author Dave Ramsey.
Hogan is a best-selling author himself, host of the podcast “The Chris Hogan Show,” and a former All-American football player with a professional background in banking and mortgages.
Last year, first-time buyers made up a third of all home buyers. While it’s easy to make rookie mistakes, Hogan says, knowing what common issues to plan for — and what to expect — will make the process smoother.
Those who are looking to make the leap in 2020, amid a volatile housing market and a deeply uncertain economic outlook, should be extra cautious about making the wrong move. By anticipating and avoiding these eight first-time home buyer mistakes, you can set yourself up for success.
Buying a Home When You Have Debt
Buying a home when you have debt is running a marathon with weights around your ankles, says Hogan.
Before taking on a huge new mortgage, you should be financially unencumbered.
“I’ve seen people jump ahead and buy a home when they’re in debt, and then lo and behold something in the house breaks and they don’t have the money to fix it. So it ends up being more of a curse than a blessing,” Hogan says.
Instead, Hogan advises people to “push pause” on buying a home until they’ve tackled all of their existing debt first, including credit cards, car loans, and even student loan debt.
Once you’ve paid off your debt, Hogan suggests building up an emergency fund of three to six months’ worth of expenses — and then saving for a home down payment.
“Regardless of what the market is doing, I think it’s a better path to get debt, save up a down payment, and do it the right way. People who have done it that way have said it’s so much easier to enjoy the house, not just buy one.”
Not Saving Enough for a Down Payment
If you’re getting a mortgage, one of the worst mistakes you can make is not putting down a large enough down payment. Hogan says any amount less than 10% is way too low.
“Save as much as possible,” Hogan says. “I recommend saving at least 20% of the total house price to avoid paying private mortgage insurance.”
A larger down payment lets you get a smaller mortgage, giving you more equity in the home and potentially lower monthly payments — and you’ll pay a lot less interest over the life of a loan.
The reality is most people don’t put 20% down on a home. The down payment is the biggest hurdle to buying a home, and it takes more than seven years for an average home buyer to save a 20% down payment on a typical-valued home, according to Zillow research. The average first-time home buyer puts 5% down on a house, according to the National Association of Realtors.
If you’re having trouble saving for a sizable down payment, consider whether you’re financially ready to buy a home. And if you’ve decided that putting down a smaller down payment makes sense for you, explore your options. Technically, you can put down as little as 3% for a conventional mortgage or 3.
5% for a Federal Housing Administration (FHA) loan. Plus, there are some grant programs for first-time home buyers at the local and state level. A good lender will be in tune with what’s available in your market, explain how private mortgage insurance factors in, and help you navigate your options.
Buying a House You Can’t Afford
Before you start touring houses, figure out how much house you can afford. In many cases, lenders will preapprove you for more than you need or would be wise to spend.
So if you haven’t already, it’s worth looking at what you have coming in and going out, and how much of your income you want your monthly mortgage payments to take up.
“A house payment should never cost more than 25% of your take-home pay,” Hogan says. “That includes principal, interest, property taxes, homeowners insurance. And depending on your situation, it also includes private mortgage insurance and homeowner association fees.”
A mortgage payment you can’t afford is a particularly heavy burden, because it’s hard to change without selling the home or moving, says Liz Sylvan, a certified financial planner at Cultivating Wealth in New York.
“If your mortgage turns out to be too much of a monthly payment, then you could find yourself in a difficult position,” Sylvan says.
Allowing the Market to Dictate Your Moves
It’s easy to get excited about buying a home when mortgage rates are hovering near historic lows, as they are now, but Hogan says it’s worth pausing to figure out whether you’re making an impulsive decision.
“People are getting antsy because rates are low. But with money things, you don’t want to do anything in a rush,” Hogan says.
Buying a house is an emotional process, and you don’t want to confuse your feelings with logic by rushing through it.
Too often, first-timers get swept off their feet by the first home they see and they fail to consider the financial responsibilities that come with purchasing a home.
Regardless of low interest rates, if you don’t have the cash for a down payment and the means to budget for a mortgage payment and other home-ownership costs, then it’s not the best time for you to buy a home. And anyway, most experts don’t predict interest rates to rise anytime soon.
Before you consider buying a home, make a solid plan to pay off all your debt (personal loans, credit cards, students loans), build an emergency fund, and start saving for a down payment.
Not Getting Preapproved
Getting preapproved — not just prequalified — gives you a leg up on the home-buying process. A mortgage preapproval letter not only tells a seller you’re serious, but also means the paperwork process will move faster if your offer is accepted.
It also makes you a more educated buyer because it lets you know the amount of money you can borrow from a lender to buy a home. The lender uses your credit, income, assets, and debts to determine whether you qualify for a mortgage and for how much.
Even after you’re preapproved, check in with your lender regularly to make sure you still qualify since lending standards have tightened during the COVID-19 pandemic.
Getting the Wrong Kind of Mortgage
There are all types of mortgages out there.
For example, fixed-rate mortgages allow you to lock in your interest rates, while adjustable-rate mortgages have an APR that will change with the markets over time — so when rates go up, your payment could go up too.
One of the first decisions you’ll have to make is the term of your mortgage, or how long your payment plan will last. Roughly 90% of homeowners choose a 30-year fixed-rate mortgage, according to Freddie Mac.
Hogan says you should take out a 15-year fixed-rate mortgage instead. The 30-year mortgage is more popular because it generally requires less cash up front and offers lower payments month to month. But the trade-off is that you’ll pay more interest over the long term.
“You’ll make your payments comfortably with a 30-year mortgage, but it’s a better deal to pay the extra $400 to $500 a month by going with a 15-year fixed-rate mortgage,” Hogan says. “You’ll pay your mortgage off in half the time.”
Compare different offers to see how the term of your mortgage will affect your monthly payments and total interest. If you feel more comfortable going with a 30-year mortgage, you also have the option to pay it off as if it’s a 15-year mortgage by making additional payments toward the principal each month. Hogan says some people can pay off their mortgage in as little as 11 years this way.
“Lenders want you to stay in debt as long as possible because they earn interest off of you. People will typically sign on for a 30-year mortgage, and there’s even talk of a 40-year mortgage coming down the pike,” Hogan says. “There’s no reason to sign on for a 30-year mortgage. You’re going to pay so much more interest over the life of the loan.”
Choosing the Wrong Lender
When it comes to picking a mortgage lender, you want someone who talks with you and not at you, according to Hogan. Many people neglect to build a relationship with their lender and put all their focus on finding the best real estate agent, but having the right lender is a crucial step in the home-buying process.
“It’s really important to work with the right lender, because this is your largest monetary asset,” Hogan said. “You want someone who’s going to educate you and guide you.”
A good lender who has your best interest in mind will give you multiple options to choose from for a down payment, a mortgage term, and other variables that go into buying a house.
Hogan says the biggest red flag to look out for with a lender is getting no explanation behind their financial recommendations. And if you feel rushed during the process, Hogan says that’s another red flag.
“You don’t want to deal with a lender that’s not really taking the time to explain all the nuisances and details of what it’s going to take and what you’re going to need at closing,” Hogan says. “It’s a lot of documents and paperwork, so you want to make sure you understand all the numbers — where they are and how they work.”
Hogan says there’s nothing wrong with waiting or slowing down the process to be really clear on the numbers. “This is your decision and something you’ll have to pay for. This is not an emotional decision, this is a business decision. So you don’t want to rush it.”
Kevin Mahoney, a certified financial planner and founder of Illumint financial planning firm in Washington, D.C.
, encourages people to ask around for a recommendation of a good lender and start that process early on.
“A good lender can often save people some money and perhaps prevent them from going down a sub-optimal road,” Mahoney says. “It’ll help you narrow down what’s realistic what the lender is telling you.”
Cosigning Your Mortgage
Some lenders will ask you to name a cosigner if you’ve got outstanding debt, a poor credit history, or lack of income. A cosigner could be a close friend, a family member, or a spouse who has a strong credit score and a steady income.
That’s a serious mistake, Hogan says.
On paper, it sounds a good idea to have someone with stronger financial standing help you buy a home. However, Hogan says it’s high risk and low reward for both parties involved. With a cosigner, you may be able to lock in a better interest rate and lower fees — but if you can’t make payments on your mortgage, the cosigner will be responsible for the bill.
If you can’t afford to buy a house without a cosigner, Hogan recommends postponing your purchase. “This helps protect your financial future and sets you up for home-buying success,” Hogan says.
The biggest mistake to avoid when taking out a personal loan
In the past few months, the coronavirus pandemic has taken a heavy toll on many Americans’ finances, with roughly 42 million people forced to file unemployment claims. During these tough times, many of those individuals have found themselves turning to a personal loan to provide them with the funds that they need to get by until they receive their next paycheck.
If you’ve also thought about going this route, one of the biggest mistakes that you can make with your money is forgetting to shop around for the best rate on your loan. Thanks to tools Credible, it’s easy to compare rates and lenders in order to make sure you’re getting the most bang for your buck.
However, if you need more proof as to why rate shopping matters, keep reading to see just how much you can save.
Why rate shopping makes a difference
Essentially, if you don’t take the time to shop around for the best loan rate, especially now during coronavirus when we’re seeing record interest rates, there’s a good chance that you’ll end up paying more than you need to for the privilege of borrowing money.
Put simply, personal loans come with a lot of flexibility in terms.
For example, while personal loan amounts typically range from $1,000 to $50,000, it is possible to get a personal loan worth up to $100,000.
To see what kind of rates you qualify for with your credit history, enter your desired loan amount into Credible's online marketplace and compare offers from lenders almost instantly.
CAN YOU GET A PERSONAL LOAN WITHOUT A CREDIT CHECK?
Interest rates can vary greatly, too. According to Experian, the rates on these loans can range from 6 percent to 36 percent. In general, those with the best credit scores are given the lowest rates because lenders see them as less of a risk.
That said, every personal loan rate is different. Each lender will decide on their own interest rate for you their perception of your creditworthiness. With that in mind, shopping around gives you a chance to find the lowest rate available to you.
The benefit of rate shopping: an example
Whether you’re shopping for a personal loan or student loan, you should always select the option with the lowest interest rate because it will save you money in the long run. Though a difference as small as one percentage point may seem negligible on paper, it can make a substantial difference in how much you pay over time. Consider the following comparison between two loans:
EVERYTHING YOU NEED TO KNOW ABOUT PERSONAL LOANS
Loan A: Loan A is worth $10,000. It has an interest rate of 10 percent and a five-year loan term. With this loan, your monthly payment would be $212.47 and you would pay a total of $12,748.23 over the five years, of which $2,748.23 would be interest paid.
Loan B: Loan A, Loan B is worth $10,000 and has a five-year loan term. However, Loan B has an 11 percent interest rate. In this case, you would pay $217.42 each month and $13,045.45 over the five years, which amounts to $3,045.45 paid in interest.
If you were given the choice between these two loans, Loan A would be the obvious choice because it would save you nearly $300 overall.
The difference between rate shopping and applying for multiple accounts
Sometimes people avoid shopping around for a loan — even if it means sacrificing their opportunity for low rates — because they’re worried that doing so will negatively impact their credit score.
While it’s true that having too many hard inquiries on your credit report at one time can lower your score, shopping around for low-interest rates on a personal loan won’t necessarily have this effect.
For one thing, some lenders only need to do a soft credit inquiry to give you a ballpark interest rate on a personal loan. Soft inquiries don’t damage your score and the lender wouldn’t need to perform a hard credit inquiry until it was actually time to approve you for the loan.
HOW TO FIND THE BEST PERSONAL LOAN FOR YOUR NEEDS
Also, credit scoring models treat inquiries related to rate shopping differently. As long as multiple inquiries happen within the same period of time and are for the same purpose, they’ll be counted as a single shopping event.
Keep in mind that the acceptable time period for rate shopping will vary by scoring model. For instance, FICO’s scoring model allows for a 45-day rate shopping window while VantageScore’s window is only 14 days.
The bottom line
By now, it should be clear that rate shopping can have a substantial impact on how much interest you end up paying on a personal loan. With that in mind, if you’re ready to start shopping around for a personal loan, visit Credible to easily compare rates and lenders today.
PROS AND CONS OF LONG-TERM PERSONAL LOANS
7 Personal Loan Mistakes To Avoid This Season
Getting approved for a personal loan always feels great. Whether it’s used to pay off debt, fund a holiday vacation, or invest in home improvements, fact is, it puts money in your pocket. The key is to be responsible and avoid the potential pitfalls that come with taking out a loan so you can remain in good financial standing.
In this article, we'll cover seven of the most common personal loan mistakes out there to help you navigate the process this season.
#1 Focusing Only on The Monthly Payments
While looking at monthly payments will offer you a quick way to compare loan offers against one another, they shouldn't be the final say on whether or not you choose a particular provider.
For one thing, monthly payments aren't the only cost associated with getting a loan. There are origination fees, application fees, late fees, and interest rates to consider.
Oftentimes loan providers will use low monthly payments to disguise some of these other feeds.
You could also end up getting a low monthly payment that lasts for several years, making the loan a longer commitment than you originally had in mind.
And secondly, monthly payments do not take into account the reputability of the financial institution you are borrowing from. Knowing who you are paying is just as important as knowing what you are paying. You can determine if a lender is being transparent by their customer reviews, history as a provider, and the additional services they offer ( free resources and customer support).
#2 Not Checking Your Credit Report First
It’s also important to keep in mind that that credit score plays a big role in the loan application process. It will affect your loan and your loan will affect it.
That’s not to say that they will negatively affect each other, exactly. In fact, getting a personal loan can be one of the best things you can do for your credit score.
You can use it to consolidate debt and improve your credit score through timely payments.
And if you already have a high credit score, you'll be able to secure lower interest rates when applying for a loan, saving you money in the long run.
In some cases, a low credit score can work against your loan application process. Having a low score will limit the amount of money you can qualify for and raise the interest rate of your loan. If you have a lower credit score and don't need a personal loan right away, consider taking some extra time to raise your score before going through the loan application process.
#3 Using or Applying for Credit Shortly Before Getting A Loan
Another common personal loan mistake related to credit score is making a big purchase on your credit shortly before applying for a loan.
Buying a car or house on credit during or before the loan application process might hurt your chances of qualifying for the loan.
If a provider sees that you are spending more on credit than you will reasonably be able to repay, they may withdraw or change your loan terms before they're finalized.
Additionally, attempting to make multiple substantial purchases on your credit in a short period of time can have a negative impact on your credit score. It's always best to focus on one loan at a time—for both your credit score and peace of mind.
#4 Making Late Payments
It may seem obvious, but making late payments on your personal loan is a fast way to rack up financial stress. Most loan providers will have late fees in place for borrowers that miss their payment due date. This increases the cost of the loan without increasing the amount of money you get from the loan. Not only that, but missing payments negatively impact your credit score.
One of the easiest ways to ensure that you don't miss monthly loan payments is to set up automatic payments if your provider allows it. Some providers may even offer lower monthly payments to borrowers that use automatic payment methods. You can also set up a calendar reminder to help you stay on top of payments.
#5 Not Budgeting for The Loan Payments
Speaking of not making monthly payments on time, another personal loan mistake that borrowers make is neglecting to set a budget for their new loan.
Even if you've never made a budget before, creating one for your loan repayment is an important part of the process.
It'll help you decide how much you can afford to pay each month, how quickly you can repay the loan, and how much you can afford to borrow.
Setting a flexible, accurate budget will relieve much of the stress associated with purchasing and repaying a loan, and prevent late payments along the way.
#6 Applying For The First Loan You Find
It can be tempting to grab the first loan that you qualify for when shopping for a personal loan online, but doing so means that you could be missing out on a better deal. Keep in mind that a loan is a financial commitment. The more time you spend picking the right provider, the happier you will be with that commitment.
When shopping for a personal loan, it's helpful to compare the APR and monthly fees of each provider. The APR is a percentage that includes all fees associated with the loan, making it a great way to determine the final cost of a loan without having to worry over hidden fees. Some providers even offer a personal loan calculator that makes comparing loans as simple as a few clicks.
#7 Overlooking The Fine Print
Last but not least, take the time to read the fine print before applying for a personal loan. The last thing you want is to be two years into repaying a loan only to realize that there was a condition or penalty that you were unaware of.
Reading the fine print of a contract is also a great way to check if a provider is being transparent with their offer. If they make claims that aren't supported or are contradicted by the loan contract, ask for clarification and consider switching providers before final agreements have been made.
Personal Loan Mistakes: The Bottom Line
The loan application can often be an intimidating and even stressful process, but don’t let it be! A personal loan can bring financial relief if it’s done responsibly—by understanding everything involved in the process so you can avoid common mistakes.
The key takeaway here is to give yourself plenty of time to make your decision, plan carefully, and weigh your options with a clear head so you'll be able to set yourself up for financial success.
Please consult with your attorney, financial consultant/planner, accountant, and/or tax advisor for advice concerning your particular circumstances.
The information contained herein is for general informational and educational purposes only and should not be construed as professional, tax, financial or legal advice or a legal opinion on specific facts or circumstances.
The information or opinions contained herein should not be construed by any consumer and/or prospective client as an offer to sell or the solicitation of an offer to buy any particular product or service.