Generally speaking, most people only ever opt for a personal loan when they don’t have enough funds to make a large purchase, like a home or a car. That’s why caution is so important when getting a personal loan; one often simply can’t afford to make mistakes. So let’s take a look at some of the common mistakes people make when applying for a personal loan in order to avoid falling into the same traps.
1) Not Doing Enough Research
If you’re interested in a personal loan, you’re probably first going to see what products your own bank offers since you do have an established relationship with them. However, it’s a common mistake to not do any research at all beyond your first choice of bank. Research will allow you to identify potentially better lenders who can offer more preferable interest rates or terms despite your lack of previous interaction with them.
Loans are easily comparable, thanks to technology. Every lender will have their own distinct credit policies and internal benchmarking that directs their terms of agreement and cost of funds. The more you compare loans, the better you will understand the market and also find the most competitive terms out there. So always make sure to shop around and compare lenders with each other in order to ensure you get the best possible loan offer. Don’t simply compare different personal loan rates to find a good deal either. You should always account for other costs and compare those too. For example, some lenders will also charge an additional fee like an origination fee, and that can end up increasing the total cost of the loan. So remember to be aware of such fees in order to avoid a loan that’s costlier than you had expected.
2) Not considering other possible borrowing options
Even though personal loans are a common way to finance your purchases, or to re-arrange debt, there are other borrowing products as well, and these could be more suited to your needs. Depending on your situation, you need to elect the product that will allow you to save the most.
So if you need a student loan, it would be a much better idea to opt for a private student loan over a personal loan, since this will allow you to make use of bigger savings and lower rates. Similarly, your circumstances could mean that consolidating credit card debt is made cheaper and more flexible by transferring your balances to a new credit card with a zero percent introductory rate, rather than getting a personal loan. It might also be worth it to explore the option of getting a secured loan. Personal loans are unsecured, which means they can be an expensive option for you. So if you have a fixed deposit that you’re not using, it might be a better option for you to take out a loan against that fixed deposit, in order to decrease the burden of repayment.
So make sure to research a wide range of potential options to make sure the solution you elect is the best one.
3) Borrowing, not saving
Are you absolutely sure you really need a loan? Remember that a personal loan can be a huge commitment. Whatever amount you’re getting should be worth the money you’ll have to use to pay off the loan. If the loan is meant to cover something you want rather than need, it might be a good idea to save up for it instead. This might obviously delay your purchase, but that might be a better and more responsible option that getting a risky loan.
Additionally, only borrow around as much as you require. If you borrow more than this, you might be doing serious harm to your future financial planning.
4) Comparing nothing but costs
As we mentioned before, it’s vital to compare loans. However, one mistake people often make is only comparing the costs of the loans. It’s also important to look at the overall customer service and experience, and to make sure that the lenders you’re considering are reputable. While this might seem to be something to overlook, the reality is that applying for and obtaining personal loans can be a complicated procedure, and you need a lender who is willing to guide you along the way.
5) Not reading the fine print
Yes, there is a lot of text to get through, but you should still always read all of the fine print on your loan agreements. Often times, banks will levy penalties on late payments and foreclosure. You need to be aware of all your rights and responsibilities in order to avoid such a situation. Once you sign on the agreement, you are effectively agreeing to every condition it stipulates, whether you’re aware of them or not. That’s why it’s so important to read every clause and understand its implications. The more fine tuned your review of the contract agreement, the more easily will you be able to catch potentially problematic things like hidden fees or even terms that differ from the offer made initially.
6) Lying on the application form
This should really go without saying, but it’s unfortunately a common enough problem that this article has to address it. You might be tempted to claim your part-timer is actually a full time job, or inflate your income somewhat. The thing is that you don’t have to worry that your loan will be rejected if you don’t make the truth a little more palatable. Your loan will definitely be rejected if it turns out you were lying though. Banks usually carry out thorough investigation into the information you’ve put on the form, so it’s likely that your little fib will be caught. And the punishment could be more than just a rejection. Lying on a personal loan application is liable to be prosecuted as fraud, and you could even end up serving jail time for this.
So remember, honesty really is the best policy here. Stick to telling the truth