7 Personal Loan Mistakes and How to Avoid Them
Personal loans can be used to consolidate debt, pay medical bills or make a major purchase. There are some things to think about before you apply for a personal loan. Here are 7 personal loan mistakes and how to avoid them.
- Not Checking Your Credit Report and Credit Score
Before you apply for a new loan or credit card, find out what your credit score is. Review your credit reports to make sure the information on them is accurate. Dispute negative items and make sure they’re resolved before trying to get new credit. Inaccuracies in your credit reports can affect your ability to get a personal loan at an attractive rate and terms.
- Not Shopping Around
There’s a wide range of interest rates you could be charged on a personal loan based on your credit, and different lenders have different criteria for determining what rate they’ll charge you. If you settle for the first option you see, you may miss out on better terms from a different lender.
- Not Getting Pre-Qualified
To find out how likely it is that you would be approved and at what terms, it’s a good idea to get pre-qualified with multiple lenders. A lender’s website usually has the option to “check rates”. To give you this information, a soft credit inquiry is done, which has no impact on your credit. Pre-qualification doesn’t guarantee you’ll be approved, but it gives you a better idea of your options.
- Not Paying Attention to Potential Fees
Many people only pay attention to the monthly payment, but don’t pay attention to additional fees that are being added to the loan amount. These may include a loan origination fee or a prepayment penalty if you decide to pay it back early.
- Not Considering Alternatives
A personal loan isn’t your only option for obtaining financing when you need it. Credit cards frequently have a promotional APR of 0% for 12 to 18 months, which can save you a lot of money if you have good credit and if you’re able to pay it back in that time frame.
- Not Considering a Co-Signer
If you don’t have perfect credit, you may be turned down for a loan or offered a high-interest rate. Before settling on that result, consider whether there’s anyone who might co-sign the loan to help you get approved on favorable terms.
- Not Making Payments on Time
One of the biggest mistakes you can make with any credit is to fail to make your payments on time. A single payment that is 30 days or more late can damage your credit and can remain on your credit report for seven years.
Be responsible for borrowed money. At least once a year, visit AnnualCreditReport.com and obtain a copy of your credit reports. Check to make sure that all the information being reported is accurate, and if you find any errors, dispute them right away.
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