We all fall into situations in our lives where we require to take a loan for our personal needs like buying a car, a house, for re-modelling a house or planning a grand wedding. We need finances for credit card bills or for buying expensive smartphones. But there are many mistakes one can make while arriving at the decision of taking a loan.
Most often, the lack of knowledge or taking advice from family and friends instead of consulting a professional can lead to a mistake. So, let’s go through some mistakes that you can avoid while taking a loan.
Save before you borrow
While planning to take a loan, ask yourself whether or not taking a loan is necessary. You need to understand that taking a loan can be a big commitment with payment of monthly installments, which involve penalties if you fail to do so.
So, before you jump, take a step and analyse your budget. If it’s possible to delay a purchase by saving money instead of taking a loan, it will help you avoid the hassle of paying back.
Lying on application
Sometimes in desperation, people tend to lie on their loan application to get approval. Lying on your loan application is one thing you should avoid. Refrain from claiming to earn more than what you are earning, or doing a part-time job and claiming to do it full-time.
This is a fraud, which can even lead to a jail term. So, be clear about your information provided. Stick to the truth because no jail term is worth taking a risk.
Credit score
A credit score is a very important parameter that is checked by a lender before approving for a loan. A good credit score ensures that you will be approved easily by the lender. Whenever you apply for loan, your credit history is checked. The rate of interest also depends upon your history, which means that a good credit score is equal to low interest rates.
If you have a poor credit score, choose independent lenders like peer-to-peer lending.
Unlike a bank, many lenders are willing to look beyond your credit score and will be interested in giving out loans.
Not reading the contract
When you take a loan, a contract is bided between the borrower and the lender, which also mentions repayment plans. Many times a borrower does not read this contract properly, which can mislead them.
By going through it, you can identify any hidden agendas or misleading information that differs from the initial contract. You can seek professional help if you face any issues understanding the documents.
Cost and fee
Before borrowing, compare different loan rates to get the best offer and deal.
As a borrower, if you are not aware of fees, you can easily end up paying more than expected. Don’t forget to explore and compare the cost. Many lenders charge an origination fee or other fees added are to the cost of loan taken.
Settling without exploring
Many times, borrowers in desperate need of a loan settle for the first option they find, which is a mistake that you should avoid. A borrower’s first instinct to take a loan is from a bank since it reflects more trust because of an already established relationship with them.
Instead of settling on your first preference, explore other options like p2p lending, where you can opt for independent lenders as well. They can even offer favourable terms and a better rate of interest. Another advantage is that many lenders might even overlook your credit history.
Always explore, compare and choose the one which offers you the best deal.
Skipping borrowing options
If you finally decide that you need to take a loan, the next step is identifying the best option. Loans are the easiest way of paying any ongoing debt or making any purchases you want to do. But going for personal loans is not always useful.
Financial strains
Personal loans are quite helpful, especially if you are facing any ongoing debt, like credit card debt. But it could also lead to further financial strain if people don’t start saving as soon as they come out of their debt. This can lead to more problems because there is a pressure to pay back the loan, as well as accumulation of new debt.
A personal loan can help you a great deal when it comes to paying off debt but always research and explore your options before finally settling. With good research and professional advice, you can easily avoid mistakes that can occur while taking a loan.