First Time Applying for a Loan? Here’s How To Avoid Mistakes
Everyone makes mistakes, whether big or small. While mistakes may help you improve, learn or grow, financial mistakes will most likely cost you money. Thus, you don’t want an expensive way of learning a lesson.
From risky investments or shares to how you settle your debts, the financial industry has numerous mistakes waiting to occur. Even the simple act of loan application is filled with hurdles that could see you stumble, fall, and lose a considerable amount of money.
You shouldn’t get worried. Here are five mistakes to avoid during a first-time loan application.
Failure to do Proper Research
You have to do proper research to find the right personal loan that will be useful in helping you save money. There are lots of loan options available; therefore, you should avoid the mistake of applying for the first loan that you come across. Instead, do extensive research. Although it may seem overwhelming, it will prove to be economical in the end.
When looking for a reputable personal loan provider, it is recommended to shop and properly compare repayment options, terms and conditions and fees and rates from different loan providers.
Ignoring Your Credit Rating
You should keep in mind that your credit score plays an essential role in the personal loan application process. Your credit score is based on your current debt levels and credit history and reveals to loan providers an idea of your ability to repay a loan. A low credit score will prevent you from getting a low finance rate or cause your loan application’s rejection.
If you have a good credit score, you shouldn’t be concerned. After doing your research, submit your loan application and wait for your loan approval.
If you have a low credit score, you should take some time to improve your credit score, like a year, before applying for a loan. Improve your credit score by paying off your outstanding bills and settling your debts.
Focusing on Periodic Payments Only
Although checking monthly payments will give you an easy way of comparing loan rates from different lenders, this shouldn’t be the deciding factor on whether you select a particular loan provider or not.
You should keep in mind that monthly installments are not the only expenses associated with a loan application. There are application fees, origination fees, interest rates, and late fees to consider. Sometimes, lenders will use low monthly payments to cover up these other costs. You may also end up having low monthly loan installments that run for many years, making the personal loan a greater obligation than you initially intended.
Making Late Payments
Do not think that the loan process ends with your loan application getting approved. You have to pay back the money. Although this may seem obvious, you may find yourself forgetting to make the payments in time.
This is a common mistake, especially if it’s your first time applying for a loan. Most lenders will charge you late fees if you fail to make your loan payments in time. This will increase the cost of the personal loan, negatively affect your credit rating and reduce your chances of getting another loan approved in the future.
If you can manage your credit card repayments and utility bills, you shouldn’t be worried. Simply treat your loan in the same manner. To avoid making late payments, create a reminder on your mobile device, mark calendar dates when the payments are due, or arrange an automatic transfer with your lender.
Not Considering Your Budget
What do you intend to use the money for? Repaying debts or settling medical bills? A personal loan will help you during difficult financial times and provide you with interesting possibilities but will leave you with interest to repay and outstanding debt.
Therefore, you should create a budget on how you are going to repay the loan. A budget will help you determine how quickly you can finish repaying the loan, the money you can afford for loan payments and the loan amount you qualify for.
Setting and sticking to a flexible budget will help you relieve the stress of the loan repayment period and avoid late payments.
The loan application process doesn’t have to be intimidating. By knowing the above common mistakes individuals make during loan application, you will avoid them and have an excellent first-time loan application experience.
About the Author:
Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.
This article has been published in accordance with Socialnomics’ disclosure policy.
