6 Terrible Mistakes When Getting Personal Loans
In the cases of unpreventable personal emergencies like replacing important items during a natural disaster, necessary house repair, or other sudden large expenses, a personal loan can be a lifesaver. Personal loans are one of many types of loans you can borrow from a bank. These loans are typically general purpose loans that you can use at your discretion for things like consolidating debt or paying for an unexpected expense or small home improvement project. Personal loans are often more difficult to get and have strict qualification requirements.
It is important to review the basics of personal loans first. There are two types of personal loans, unsecured and secured. A secured loan is a loan that is backed by an asset as collateral (home or car). If you default on the loan, the lender can take the asset. A secured loan typically offers lower interest rates and better overall loan terms. Unsecured loans have no collateral, however, if a default occurs the bank can take legal action in hopes to recoup the money. Due to the fact that these type of loans tend to be riskier, they have higher interest rates and often poor loan terms. Both types of loans are taken out for a set period of time and have a fixed monthly repayment schedule.
Availing a personal loan is a huge commitment, one which requires dedication from our sides. While we might think that a personal loan is an answer to all our questions, there are certain aspects which should be considered, for a personal loan, like any other product, comes with a set of positives and negatives attached with it. If you're thinking about borrowing a personal loan, here are 6 terrible mistakes that you need to know so you can avoid them.
Every day, lenders process a lot of loan applications. Missing out one or two important requirements will most probably end up with your loan not being processed. They could even put it in a “To Follow Up” file, which they will check once they are done with other applications.
What to do: Before you submit your application, check the lender’s website or call their hotline and ask for the requirements needed. This will help facilitate your application faster.
Good News: Loan Ranger only needs a valid government ID, proof of income, and Facebook account if you wish to apply.
Never take your loan for granted. Lenders use it to know you better and assess whether you are worthy of credit. Consequently, they need to know if you are being honest. Otherwise, incomplete or wrongful disclosure could lead to court cases for fraud, specifically identity theft and you don’t want that to happen.
What to do: Be honest in your application form, from the address, and even your mobile number. Disclose your monthly income too, or else you’ll have a headache worrying about how to pay your $ 2, 000 loan when you only earn less than that.
Skip to Compare Lenders
There are plenty of lenders that could help you finance your needs. Still, each lender has higher or lower rates compared to the others. Some may even charge fees like processing fee while others waive it. There are even lenders with bad reviews.
What to do: Compare then decide. Put a little effort to get to know the lenders available within your area, ask about their loan terms and fees, and then decide which lender is the best fit for your needs. This could help you save a lot in the long run because you are able to choose a lender wisely.
Not Considering Your Credit Score
Credit Score is among the biggest factors lenders look into when you apply for a loan. Aside from your capacity to pay, they also want to make sure that you have a good relationship with other lenders and that you are also a responsible borrower. Even if you have a bad credit score, some lenders may lend you money, but with a higher interest rate.
What to do: Make a conscious effort to pay your financial obligations on time and if you can, in full. Consider your credit score before you send your loan application. The better your score is, the higher the possibility of loan approval.
Demand More than What You Need
There is a reason why lenders ask proof of income as part of the requirements. They need to know how much you are earning so that they can lend you money that is within your capacity to pay. Apparently, there are many who apply for a loan that is more than what they are earning, which leads to outright rejection.
What to do: Borrow money that is within your capacity to pay. Take your budget into account before you place any amount on your application. Ideally, the monthly payment should not be more than 15% of your monthly salary to avoid you from burying in debt.
Now that you know, make sure to avoid these common mistakes. After all, loan rejection will reflect on your credit score as well. It may be easier to get a personal loan from a bank you already have an account with. The bank will probably want to know what you're going to use the money for and may even have a better loan for your needs. As with any other loan, it's important to choose personal loans wisely and only borrow what you can afford to repay.