Personal loans grew by 19.2% in the first quarter of 2019.
With more people than ever applying for and using personal loans, there are also more people making avoidable personal loan application mistakes. Mistakes that cost borrowers more in the long run!
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If you’re looking to join the many people applying for personal loans then it’s important that you avoid these mistakes so you can get your loan with the minimum amount of stress and extra costs.
In this post, we’ll go over some of the most common mistakes made in the personal loan application process, and how to avoid making them.
Keep reading to learn more.
One of the biggest mistakes borrowers make is to not compare different lenders before applying for a personal loan. Different lenders will all have their own loan fees and penalties as well as different basic requirements for approval. Compare the various:
While it can be very tempting to go with the first option that you find, this can wind up costing you more over the life of the loan in interest and fees. Be sure to compare local banks, national banks, credit unions, online lenders, and different types of loans.
One of the things you should pay close attention to when choosing your personal loan provider is their lending practices and any kind of predatory actions. These are things such as abnormally high-interest rates or late fees, rushed approvals, and encouragement to lie on the application.
When it comes to personal loans, there are so many little details that it can be easy to get overwhelmed and ignore them, but this can majorly backfire. It’s critical to pay attention to what the application, origination, late payment, and returned check fees are, not just what the monthly payment will be.
If you’re not aware of these fees then it can be easy to make a mistake that you’ll be penalized for. For example, if your loan has a prepayment penalty, you could be charged extra for paying off your loan early. This is something you need to be aware of but could easily overlook.
This also applies to reading the fine print on closing documents. These include important information regarding how interest is calculated, what forms of payment they accept, and the payment schedule. While these may seem like small details in the grand scheme of things, they can make a big difference in how you pay back your loan.
Some people consider getting a personal loan a last resort. This means that when they do apply for one they may feel desperate that they need to be approved. But no matter how desperate you’re feeling it is crucial that you don’t stretch the truth or outright lie about your current financial situation.
Lying on a loan application is illegal and can come with massive consequences including fines, being barred from ever applying for a loan again, and even jail time.
There are lenders out there that will work with people with poor credit, low income, or other financial issues. Just be honest.
One of the first things you should do when considering applying for a personal loan is create a budget so you know exactly how much loan you can afford. If you jump into a loan without considering whether you can really afford it then it can put a great financial strain on you when it’s time to make your payments.
You need to be sure that you can afford the monthly payments because if you can’t and you miss even one payment, it can negatively impact your credit score, and cost you even more in missed payment fees. While you may feel like you’re solving one financial problem with the loan, you could be creating another even worse problem down the road.
This budget should also include an emergency fund so that if something should happen to you like an injury or loss of income you’ll still be able to make your payments.
Just because a lender is willing to lend you more than you asked for, does not mean that you should accept that larger amount. While more money can sound like a big bonus it also comes with more principal to repay, more interest, and higher fees that are sometimes based off of a percentage of the loan itself.
If you take out a larger loan than you need and miss any payments it can have negative consequences for your credit score and your future borrowing power.
Avoid making this mistake by taking out only the amount you need, not more. Don’t let predatory lenders convince you to take more.
A pre-approval does not necessarily mean you will be approved for the actual loan. This can cause a lot of problems if you move forward and begin spending money before you’ve actually been fully approved for the loan.
Pre-approval doesn’t include all of the details in your credit report that will be found during the actual loan application process. If something unexpected comes up and your application is denied you can wind up in great financial distress.
Be sure to avoid spending like you have the loan before you actually have the money in your account, and make sure you have a backup plan for what you’ll do if your application isn’t approved.
A personal loan can be a powerful tool for financing important things in your life, but it can also be very expensive and complicated. Be sure to avoid making these personal loan application mistakes to keep the process as smooth and cost-effective as possible.
If you’re in need of a personal loan fast, we can help. See what you’re qualified for today!
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