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Even though it’s easy to involve yourself with personal loans, it’s important for you to know the terms and conditions. Trust me… you do this to avoid any issues down the road.
The first thing to understand about loans is to know what mistakes to avoid concerning them.
Below are the most common mistakes people make with personal loans.
Mistake 1: Not Shopping Around
It’s an easy thing to shop around for a loan that looks appealing on impulse and apply on the spot. You may even feel accomplished for doing so. As you might buy a pair of sneakers, and ten minutes later you see an even better-looking pair and regret your prior purchase, it’s important to shop around for a loan so you won’t regret later.
During the process of looking around for a loan, it’s common for people to solely focus on the interest rate and the amount they have to pay back. Moreover, it is a good thing though to take both of these into account.
Here are important rules to follow while looking for personal loans:
- Don’t just take the interest rate and the amount you have to pay back into account when choosing a personal loan. Your loan service provider could be a difficult person to relate or communicate to.
- Make sure to check out penalties and charges for early or late payment fees.
- Be sure to research credit card companies’ reviews online. If they are popular, there will be reviews about them for you to view. Hearing what people have to say about them is very important.
- It’s important not to apply for multiple loan accounts in a short span of time. Doing so damages your credit score. Shopping around doesn’t mean that you apply for every single loan that passes you by. Your credit score would suffer a terrible blow.
- Also, keep in mind that comparison sites don’t show every single loan provider. Even though it’s good to look on comparison sites, they are not the all in end all. Some loan providers, that are good, may not have their information on those sites.
- Remember to take the process at a slow pace no matter what situation you feel like you’re in right now. Rushing into things causes more regret than thinking everything through.
Overall, being patient while you’re shopping for a loan and not rushing into things will save you a lot of trouble in the long run.
Mistake 2: Not Considering Other Options
Even though you have the potential to be an excellent candidate for a personal loan, it’s best not to apply for it in haste. For instance, a small loan can have interest and fees accrue just like, and even more than a larger loan. If you miss payments with a smaller loan, it still damages your financial stability. This is why it is important for you to think everything through before signing your signature on the loan.
The overall aspect of making this decision is to ask yourself is why you need the money. Getting a personal loan isn’t the only option to consolidate your debt. Moreover, there are various credit cards that allow you to consolidate your debt through you utilizing a balance transfer. Most lenders offer 0% intro APRs on balance transfers too. Obtaining a balance transfer is a cheaper route because you don’t have to pay interest if you pay the balance off in full during the 0% introductory period.
If you choose to get a personal loan instead, the lender requires you to pay interest from the begging. Even though this is true, there are still some things you need to consider.
Consider the Balance Transfer Fee
You still have to pay a balance transfer fee that’s usually 3% or 5% of the balance you’re transferring (you can even reduce it a bit by negotiation). In addition, you won’t have much time to pay off the balance.
If you’re confident that you can pay the balance off in full before the 0% introductory period ends, getting a balance transfer is the better option.
You can visit our balance transfer credit card reviews to get the latest news on the top credit cards that have good balance transfer terms.
Furthermore, if you want to make a large purchase, getting a card that offers a 0% intro APR on purchases is a great option. The reason why is that you have the chance to spend using your card without being interest accruing on your purchases. If you qualify for a rewards card, you will also earn rewards as you continue to make purchases; it’s a win all day long!
For instance, if you have a Chase Freedom Unlimited, you have 15 months to pay the purchase off to earn 1.5% cash back on your purchase. On top of that, you get a $150 bonus if you spend $500 on purchases within the first 3 months. You can see which cards offer both cash back and 0% APRs on our cash back credit card reviews.
Mistake 3: Accepting Irresponsible Repayment Terms
Even though most lenders have strong guidelines they follow, there are some that still have irresponsible repayment terms. This can range from lenders requesting a lot of money upfront to implement a very high-interest rate. Even though repayment terms that are irresponsible are connected with the payday loans industry, you can still come across rates and terms that are questionable while searching out traditional loans.
Here are the following things to look out for:
- If the interest rates are too high; especially in the case of a lender offering you a short lending term.
- Repayment amount that is too high. Typically, you will see this at the beginning of your loan term in order paying the interest quickly.
- Expensive admin fees and services, especially if you are paying them on a regular basis in accompany with your interest rate. It’s also good to ask what portions is the actual interest and what part are the fees, especially loan origination fee.
- Loans with no interest. Even though these may look attractive, they have very high admin fees that add up to a large amount with an equivalent interest rate.
Mistake 4: Not Checking Your Credit File
The fact that you have the right to obtain your credit report for free by law, it’s strange to apply for a personal loan or any other loan product without checking it to make sure that your information on it is correct.
Getting a personal loan is a huge decision because you are committing to sign a contract for something to be paid back for at least six months. You’re not only committing to making your payments, but also agreeing to all of the loan terms.
Moreover, it’s very important for you to read the terms and conditions before signing because you may have to pay additional fees such as an organization or payment processing fee that you are not expecting to pay. By doing so, there won’t be any sudden surprises down the road. If you notice anything you’re not sure about, feel free to ask your lender for clarification.
Back To Mistake 1 – Do Your Research
If you are unhappy with what the lender is informing you, you can always opt out and look for another lender. Furthermore, it’s possible that you may have an inquiry from the previous lender that your new lender may not like. The main way to avoid a credit inquiry is for you to do your own research prior to applying. It’s important to know the loan terms, read the terms and conditions, and reach out to the lender if you have any unanswered questions. When you know your lender of choice and you have checked your prequalification chances, then you can apply for the loan.
Even when you don’t know for sure that you will qualify for a personal loan or another loan product, having a good credit report gives you the boost to apply with confidence. If there are any discrepancies on your credit report that’s causing your score to be lower than it should, it’s a good thing to get that sorted out before applying.