It’s estimated that more than 24 million Americans will take out a personal loan this year. There are several reasons that so many people turn to this type of unsecured debt, including the fact that they are easy to acquire, usually don’t require a credit check and provide the funds needed in an expedient manner.
However, when taking out personal loan you have to proceed with caution. While a short term loan can be extremely beneficial, if you make one of the most common mistakes, they may end up costing you more. Keep reading to find out what the most common mistakes are, and how you can avoid them here.
- Not Checking Your Credit Rating
It’s important for you to know what your credit rating is before applying for a personal loan. Why? Because, you need to know what your creditworthiness is.
If you don’t have a great credit score, then you may not be approved for some loans. Also, if you are approved, your interest rate may be higher than someone with good credit. While not all lenders check this, it’s still a good idea to check it before you apply. After all, if you have less than stellar credit, you can take time to improve it before applying for a loan.
- Applying for an Excessive Number of Personal Loans
If you need funds now, then you may make the mistake of applying for as many loans as you can. When people feel desperate, they may feel as though they have to apply for as many loans a possible.
However, each time a short-term lender processes your loan application, they may be making a hard inquiry on your credit. This is then reflected on the report, and over time, with several inquiries, this can cause your rating to drop. Also, the lenders may come to the conclusion that you are extremely credit hungry, which may result in them hesitating to provide you the credit you have applied for.
- Settling for the First Offer
If you are instantly approved for a loan, you may be tempted to take what is offered and walk away. While this isn’t always a bad thing to think about, you may wind out losing a chance to get the best offers if you don’t take the time to shop your credit and loan needs around.
After all, a lender willing to provide you with an instant loan may also require a higher interest rate for this convenience. While it may take you more time to be approved, if you shop your loan around a bit, you may be able to reduce your debt burden significantly.
- Failing to Read Everything
There are many lenders who are going to assure you that you can be approved quickly when you are applying. However, try not to fall victim to these types of promises.
Be sure that you go through each of the conditions and terms of the loans you are getting. This will ensure you are aware of the charges that you are going to have to pay upfront. If you don’t like the terms, then you may need to keep looking and find a different lender.
- Choosing a Longer Time Period for Your Loan
If you want to have smaller monthly (or weekly) payments, you may opt to take a loan for five years, rather than three. While this may sound appealing at first, all you are really doing is increasing the amount of debt you are taking on.
If you choose a loan with a longer repayment period, then you are going to be paying much more in interest over the term of the loan. With a smaller loan period, you can save on the interest and reduce your debt overall.
As you can see, there are more than a few considerations you need to keep in mind to ensure you don’t make some of the most common mistakes when taking out a personal loan.