There are any number of reasons why you might need a personal loan (as opposed to auto, home, student, or business loans, just for example). Perhaps you’re keen to take a much-needed vacation and you just don’t have the cash on hand to pay for everything up front. Or maybe you want to upgrade appliances or make small home improvements that you don’t necessarily want to take out an equity line for. Perhaps you need the money to lay a loved one to rest. Personal loans really can be for almost anything. But like any type of loan, you could make a slew of common mistakes in the application process. Here are a few major blunders you’ll want to avoid.
- Failure to check credit first. You don’t have to check your credit before you apply for a loan, but your lender certainly will. So it’s probably a good idea to know what you’re going into so you’re not surprised to discover that your credit score is lower than you anticipated. Plus, getting a copy of your free credit report online (available from a variety of sources these days) will let you know about any black marks besmirching your good credit. Some may even be from past issues that you’ve since cleared up (but lenders failed to report the resolution). This could give you the opportunity to clear up your credit and raise your score before you ever apply for a loan.
- Failure to shop around. You might think you’ll get the same deal from every lender you visit, but this simply isn’t true. Some may offer more funding, lower interest rates, better repayment terms, and so on. So you really need to comparison shop in order to find the most favorable options.
- This is a major no-no. You might be tempted to fudge a bit when it comes to your credit score, your employment history, your current income, or other factors that could affect your ability to get a personal loan or the amount you’re approved for. But lenders aren’t stupid – they’ve been managing their businesses wisely for years in most cases because they are careful about whom they lend to. So they’re obviously going to check everything. And when they discover you’ve lied, they will deny your loan application.
- Failure to understand terms. Lenders will provide you with a contract to sign before they agree to loan you money. As an adult, legally capable of making such agreements, it is your duty to read and understand what you’re signing. If you don’t understand the terms, ask the lender to explain any legalese you find confusing, or to point out the finer points of your deal for you in the paperwork. You can also consult a lawyer at your own expense. And don’t be afraid to haggle. Some terms and rates may not be negotiable, but you’ll never know what concessions you can get until you ask.
- Failure to calculate payments. There are two things to remember when you take out a personal loan. First, there are going to be additional costs due to fees, so don’t forget to ask about them and add them into the total to make sure you can afford it all. Second, you need to look not only at the total amount of theloan approval you’re seeking, but also what your monthly payments will be. Only then can you be sure you can actually afford to pay off your loan. Whether you go to a bank or a loan company, it’s your responsibility to take out only the amount of money you can reasonably expect to pay back.