A personal loan is one of the most, if not the most versatile loan product out there. It has a number of financial uses. Among them are:
- Providing additional cash for medical emergencies
- Consolidating debt
- Financing a vacation
- Funding for home improvements or renovations
Still, it’s important to remember that it’s not free money. The decision to apply for a personal loan should be taken seriously and considered carefully. In the interest of careful consideration, you should be aware of common pitfalls that can be made on or before the application process.
1. Failing to shop around
Applying a loan with the first lender you come across can be tempting. The combination of a (seemingly) flawless proposal and great advertising is often hard to resist. Sometimes, you just don’t have the time to shop around for other options. Thus, you jump at the first proposal from a reputable financial institution you get hold of. By doing this, you miss out on the opportunity to secure the best deal with the perfect terms and affordable monthly interest.
Prevent this from happening by examining the options out there. Start with the group you’re most familiar with. This could be your bank or a credit union you’re affiliated with.
Overstating your income on that application form won’t get you a better deal. Lying can seriously harm your chances of getting approved for a personal loan. It also has costly legal implications. Lenders don’t always check that you are telling the truth, but when they do find that you misrepresented yourself intentionally, they could demand that the full amount you owe be paid back at once.
Always provide accurate information on your application. Increase your chances of getting an approval by examining your credit score before seeing a lender. Work on improving your financial situation first before taking the plunge.
3. Spending as you used to
Having that loan money does not make you immune to mistakes. Most people who take out personal loans for debt consolidation fail to change their money habits. Shifting the debt frees up those credit cards so you can continue using them. Uncontrollable spending can put the borrower in a financial situation much worse than before taking out a personal loan.
Keep tabs on your spending while you’re still in the middle of paying a loan. Work in those monthly payments into your budget. Stick to the necessities and skip on stuff you can do without for the meantime.