Many people make mistakes when they are in need of money and in a rush to take out the loan. Making mistakes help you to become more experienced but they also be expensive for you. The following are the 3 mistakes that most people make when they are applying for a personal loan.
1. Fail to Shop Around
The number one mistake that people make when applying for a personal loan is to fail to do research and shop around different lenders. Nowadays, you can go online and request for a preapproval quote which is the estimated interest rate. You can fill in 3 – 5 loan preapproval forms and compare to see which one offers the lowest rate. Don’t just take into account the interest rate but also other factors such as fees, postponing a loan payment, and lending term.
2. Neglect to Check Your Credit Score
Before applying for a loan, don’t forget to check your credit score. Your credit score is a big factor that can affect your loan approval and the interest rate that you receive. You want to make sure your credit score is in good shape before applying. Having good credit score can help you to qualify for a low interest rate.
If you have a bad credit score, the interest can be high and it will be harder for you to afford the monthly repayment. To turn around this situation, you need to take actions to increase your credit score, for example, paying bills promptly, dispute the errors with the credit bureau, maintain a low balance on your credit card, and paying off your existing debt.
3. Borrow More Than You Can Afford
Many people forgot to consider how much budget they have when they are applying for loans. You must ask yourself why you want to apply the loan in the first place for example medical bills, or consolidating a debt. You must make sure that you are able to afford the loan expenses otherwise you will be struggling to keep up with the payment afterwards. Besides, you must know that the loan amount you apply will depend on how much is your disposable income.
For this reason, you should not apply for a loan amount that is more than you can afford. As a rule of thumb, the loan repayment should not exceed more than 25%. After getting approved for the loan, you must not forget to make repayment. You can remind yourself about making repayment on time by marking the payment date on the calendar. You can also set up reminder on your phone. Setting up automatic transfer on your bank account enables the repayment amount to be automatically deduct on the due date.