That’s why taking the time for picking the best type of personal loan for your situation will pay off. Fail to do so, and a personal loan mistake could hurt your finances for years to come.
Be cautious when getting a personal loan
Most of us can’t afford to make mistakes when getting a personal loan. But you can avoid them if you know what to watch out for.
Here are some common personal loan mistakes to look out for — and how to make sure you don’t make them.
1. Borrowing instead of saving
A good starting point for avoiding personal loan mistakes is figuring out whether you really need one or not.
Getting a personal loan is a big commitment. So you’ll want to make sure what you’re getting is worth the chunk of your budget you’re devoting to paying off the loan.
And if the purchase you’re getting a personal loan to cover is more of a want than a need, consider saving up instead of borrowing to buy it. Not only is saving up the less risky, more responsible financial decision — it will also save you from paying tons of interest.
While you may have to delay your purchase, that’s better than taking on a loan that could stretch you too thin.
2. Skipping over other borrowing options
If you decide that borrowing could be beneficial for your finances, the next step is to identify the borrowing product that will save you the most.
Although personal loans are a common way to finance purchases or refinance debt, they’re not always the best option. For student loans, for instance, refinancing with private student loans will often deliver lower rates and bigger savings.
Another example is consolidating credit card debt. Transferring balances to a new card with a 0% APR introductory rate could be a cheaper and more flexible option than a personal loan.
Don’t make the mistake of assuming a personal loan is the only or best choice. Check out a range of possible solutions to make sure there’s not a better one out there.
3. Settling for the first personal loan you find
Most borrowers interested in a personal loan will look first with their current banks. After all, they already have an established relationship with them.
But failing to look beyond the first choice of lender is a common personal loan mistake that can cost big. Another lender might offer a better interest rate or other favorable terms, even if you’ve never borrowed with them before.
When getting a personal loan, looking around and comparing loans is the best way to make sure you get a good deal. But you’d never know if you don’t spend some time looking around for the best offer.
4. Overlooking costs and fees
When comparing lenders, most borrowers will compare different personal loan rates to find a good deal.
But don’t forget to compare and account for other costs, as well. Many personal lenders will charge an origination fee or other fees that can add to the costs of their loans.
If you aren’t aware of what those fees may be, you could end up with a personal loan that costs more than you expected.
5. Only comparing costs
Paying attention to costs is important, but it’s not everything. Customer service and experience can also play a huge part in whether you end up regretting your personal loan choice.
Make sure all person lenders you’re considering are reputable. And you should definitely watch out for scammers or predatory lenders.
Check personal loan reviews as well to find out whether most customers are satisfied with a particular lender or not.
6. Ignoring your credit score
When it comes to getting a personal loan, your credit score is a big deal. It’s one of the main factors lenders consider when deciding whether to approve you for a loan.
Lenders also set personal loan rates by credit histories. Therefore, the better the credit, the lower the interest rate.
If you apply to personal loans without considering your credit score, you might choose to apply with a lender that’s a bad financial fit.
7. Lying on a personal loan application
Lying is the one thing you should never do when getting a loan.
It might seem like a minor fib to claim a job is full-time when it’s actually part-time, or round your income up. Maybe you’re worried your loan won’t get approved if you don’t “fuzz the truth” a bit.
But lying on a personal loan application can be prosecuted as fraud and result in jail time.
Getting a personal loan will never be worth that amount of risk. So just stick to the truth and only the truth.
8. Not reading the fine print
Borrowers should always read the fine print of their loan agreements. Even if it seems like it will take you forever to get through all of it.
By reviewing your contract, you can catch things like hidden fees or loan terms that differ from the initial offer. These can all be signs of predatory lending as well, according to Debt.org.
9. Consolidating debt without changing expenses
Personal loans are a common solution for consolidating debt, particularly credit card debts. Essentially, personal loan funds are used to pay down balances on credit cards.
But a common mistake borrowers make is consolidating debt without changing their spending behaviors. So when the credit card balances reach $0, some people keep charging unnecessary purchases to their credit card.
This can land them in double the trouble because then they’ll have both their consolidation loan and new credit card debts to pay off.
Getting a personal loan is a significant financial step that deserves lots of thought, research and care. With responsible borrowing behavior, you can avoid personal loan mistakes and get the funds you need — regret-free.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|7.39% - 29.99%||$1,000 - $50,000|
|4.98% - 14.24%1||$5,000 - $100,000|
|8.00% - 25.00%||$5,000 - $35,000|
|4.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.25% - 14.24%||$2,000 - $50,000||Visit Earnest|
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