Today’s post is a guest post by Baruch Silvermann. Baruch Silvermann is a personal finance expert, investor for more than 15 years, digital marketer and founder of The Smart Investor. But above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Many consumers are discovering the advantages of personal loans. First of all, it is very flexible such that it allows borrowers to start simple home projects, fund a large event or even settle or consolidate debts. But before you get caught up in the convenience that it can give you, you should know what you’re getting into.
Many borrowers jump in too quickly without sufficient knowledge of a loan product and end up with many problems later into the term. Part of understanding personal loans is knowing the major mistakes you should stay clear of. We’ll give you the three most common ones.
How can you avoid these three biggest personal loan mistakes that borrowers make?
Mistake No. 1: Not Shopping Around
Many personal loans come with an interest rate and repayment terms that are too beckoning that many people just apply on impulse. Some might even convince themselves that they found the best deal. But remember the rule about shopping – you can often find a better brand or deal a couple of shops farther where you made your impulse purchase. The same thing applies to loans. You won’t lose anything if you shop around and compare before you decide on a particular loan.
When shopping around, don’t just look at the interest rate, the monthly payment and the total amount to repay. Look at the other features of the loan such as fees and restrictions. Make sure that you consider all the important factors before you decide and not just the interest rate.
Mistake No. 2: Not Considering Other Options
Do not decide in haste for a personal loan because you think that’s the only option you have right now. Any loan has the capability to leave you financially debilitated. One missed payment and the interests, penalties, surcharges and late fees will start to accumulate. So, don’t be too eager to pull the trigger – try to consider all of your options before you commit to a specific loan.
Your decision will depend largely on why you need to borrow some money. If it’s because you want to consolidate your debts, there are other avenues aside from a personal loan. You can find many credit cards that are for debt consolidation thru a balance transfer facility. They often come with an extended zero-percent introductory APRs on balance transfers. Going by this route is the cheaper choice because you don’t need to pay interest as long as you pay within the promotional period. In a personal loan, your interest starts to accrue from Day 1. These are things to keep in mind.
Mistake No. 3: Not Checking Your Credit File
The law gives Americans access to their credit report for free but not everybody is taking advantage of this. So, if you’re applying for a personal loan (or any credit product), one of the first things you need to do is check your credit file. Make sure that all the information is correct and up-to-date.
Getting a loan is not a light decision because you would commit to paying a monthly amount for at least six months. Remember that you are committing yourself to many things aside from making that monthly payment on time. You are also saying “Yes” to all those fine prints in your loan agreement so it’s imperative that you read and understand everything that makes up those terms. The loan agreement might say you should pay some additional fees such as an origination fee or a payment processing fee aside from the interest. Make sure that no extra cost catches you by surprise. The way to do this is to make sure that you’ve gone through every line of the terms and conditions of the loan before you sign your name on the dotted line. If you see a vague provision, ask the lender what it is and how it will affect you. If you’re not satisfied with their explanation or with the condition itself, you can always back out. You may cancel your application at any time and look for another provider.
Can I get a Loan With Bad Credit?
If you want to get a loan but you have poor credit or no credit, it’s not an easy task. However, there are a couple of ways you should consider:
- Get a Co-Signer
You may be approved only because you have a qualified co-signer. That person will apply for the loan with you and will guarantee to repay the loan in case you will not be able to. The lender requires a great credit score from your co-signer. Also, you should be aware to the implications of using a co-signer.
- Get a secured loan
In case that you have built up enough equity in your home, you can apply for a home equity loan or HELOC , which is actually home equity line of credit. Your home equity is simply the market value of your home minus the balance of your mortgage. Your rate will probably be lower because your home acts as security for the loan. In addition, whatever interest you pay on a home equity loan is normally tax-deductible.