Avoid These 9 Common Mistakes When Getting a Personal Loan

getting a personal loan

Getting a personal loan can bring huge relief when there’s a need for extra funds. What’s more, personal loans can be a smart option for consolidating debts or covering urgent expenses.

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!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.