When financial jams suddenly take place, you can always get help from short-term personal loans. These loans are quick, accessible, and beneficial to consumers who are in need of immediate money to cover their emergency expenses and maintain adequate lifestyle. Although these loans are easy to manage, certain issues still arise due to consumers’ simple slips.
One small, careless mistake may lead to big costs. Before you take out a loan, here are seven common mistakes you must avoid.
Tolerating your emotions
“When people become passionate about something or they are desperate in saving themselves in a financial crisis, they’ll want a loan to fix everything,” says Michael Poulos, CEO of Michigan First Credit Union. The problem is the more you are desperate for a loan, the more emotions get in your way, and the more you end up making hasty decisions.
Keep in mind that loans aren’t designed to fund your shallow desires but to assist you with necessary financial needs. When getting a loan, don’t let your emotions persuade your decisions. Always think of the long-term effect of your loan and take your time shopping for the right loan and lender that would work for you.
Failure to read the fine print
Getting a loan is not the same as checking a computer software’s terms and agreement without reading it just to get away with the process. Information about interest rates, late fees, closing costs, and other reminders are all buried in your legalese. Failure to review the contract may cost you big time.
When you’re in a middle of a financial jam, your primary concern is the amount for which you can be qualified. You tend to overlook the price you’ll have to pay back. Upon signing the contract, however, you are implying the lender that you have understood every word stated in the agreement and you are aware of the possible consequences, even if you don’t.
Double check the contract before signing it and ask yourself if you can pay off the price on the agreed pay date. Ask questions if you don’t understand a term and always try to negotiate for a lesser amount that fits within your budget.
Prioritizing price over quality
You found a loan with lower interest rates and consumers with bad credit can qualify without any hassle. What’s the catch? There could be something in exchange when the offer is too good to be true. Maybe they are new in the business and their customer service isn’t that good. Or worse, they could be scammers who find great pleasure in taking advantage of your need for money.
If you’re going to get an online personal loan, you should consider not only the price but the reputation of the company. Be skeptical if the company aren’t interested in your credit history or they ask for application fees upfront. Seek recommendations from your family and friends or read credible reviews about the lending company. A lot of borrowers go only for the price and miss out legit companies that truly provide great deals and customer services.
Not checking credit score first
One of the most common mistakes in taking out a loan is the lack of preparation. Aside from the documents that prove how good your monthly income is, lenders are more interested in your eligibility in handling loans, which is reflected in your credit score. Checking your rating is a must yet often missed out.
Remember that having a good credit score will give you a higher chance of getting approved with lower interest rates. If you have a bad credit score, you have no choice but to turn to lending companies who will approve your application but will give you higher rates. You can also fix your score first and apply later for cheaper loans.
Taking out more than one loan
Short-term personal loans have minimal eligibility requirements. In most cases, you just have to have a checking or savings account and a specific amount of income. Since it’s easy to get approved, it might be tempting for some people to keep applying for the loan from different companies instead of choosing other interest-free alternatives when they need money.
When you take out more than one loan, think of them not as multiple privileges but as multiple responsibilities. Consider all the costs involved, such as additional fees and charges that may accumulate if you fail to keep up with your payments.
Taking out the loan for someone else
It might be sweet to lend someone money when they need it but taking out a loan and giving the cash to another person is a different story. You might be aware that co-signing is a very risky move but taking out a loan for someone else is more dangerous since you are owning the responsibility and your name and your finances are at stake. It can not just lead you to bankruptcy but can destroy beautiful relationships as well when the person who owe you money failed to repay the debt back.
Telling those little white lies
Not qualified for a loan due to insufficient income? Little white lies can help you get that loan unless your lender is smarter than you are. Lenders cannot be tricked since they always ask for legitimate documents and they can tell whether you’re telling the truth or just making up stories about your information.
So don’t try to overstate your credit score and income, understate the debts you owe, or use another family member’s social security number without his or her knowledge. All jokes will go back to you once they find you’re lying. You can lose your loan or end up with a hefty fee.
Like other young adults, Carmina Natividad also experiences struggles in saving money, yet she finds a way to become a responsible spender. She shares her views on personal finance issues by being a daytime writer for Speedy Money, an Australian-based business, providing short-term borrowing solutions.