Taking out a personal loan can be a big decision to make. Not only could it negatively affect your credit report if you mess up your obligations, but it’s another bill you must pay monthly. Before you apply for a personal loan, check out this list of Dos and Don’ts when applying for a personal loan.
Since you’re exposing yourself to financial risk when applying for a personal loan, you must consider a few things before signing on the dotted line.
DO Focus on Your Needs, Not Wants
Before applying for the loan, you must clearly state what you need the loan for. Some problems don’t require a loan to fix, and if you can avoid applying for a personal loan, you should. First, write down the problem you need to take care of. If it’s not an absolute necessity, try to wait until you can pay for it, so you’re not unnecessarily applying for a personal loan.
DO Pay Attention to Your Credit Score
Lenders pay close attention to your credit report to ensure you’re eligible for a personal loan. They want to make sure that you’re capable of making payments on time, and they want to ensure that you can abide by contracts.
DO Look at Interest Rates
An interest rate is the amount of money added to the top of your debt. Interest rates vary depending on several factors, but it’s wise to go with the lender with the fewest interest rates. It’s also essential to go with the lender with the least expensive interest rate to protect yourself from paying excessive costs in the future.
DO Consider Added Costs
Added costs include processing fees, prepayments, penalties, and withdrawal fees. Newsweek recommends paying close attention to the number of added charges being applied to your loan. These added costs can amount to a large sum, so ensure you’re comfortable with the fees before signing the loan application.
Unfortunately, some people jump the gun in an emergency and accept the first loan they’re offered without caring about the small print. Before applying for a personal loan, make sure you know what NOT to do to prevent a financial mistake in the future.
DON’T Pay for Luxuries
Everyone enjoys the finer things in life, but many of us can’t afford them. While it would be nice to go on an expensive shopping spree or buy a new boat, those things are optional and should never be paid for with loan money. It can be tempting to spend your loan on fun things, but when you find a fixed-rate personal loan, you should only spend it on things you need, or you could end up in a bigger rut than you were in to start with.
DON’T Borrow More Than You Need
Getting approved for a loan comes with a lot of responsibility. When you apply for a loan, you’ll have to include the amount you’d like to receive. You must only apply for what you need. This could cause you to enter a revolving door of barely making ends meet because you have a loan payment that’s too high. Don’t put yourself at unnecessary risk and only apply for what you need.
DON’T Ignore the Terms and Conditions
Many people skim over the terms and conditions without realizing how big of a mistake that is. The terms and conditions inform you of everything that has to do with your loan. Those are your finances, and it would be unwise to overlook information such as how the debt will be paid, the payment schedule, and penalties if you default on the loan.
DON’T Miss Payments
Missing a payment or making a payment late could have a negative impact on your credit score. This could cause you to get rejected if you ever need a loan again, and it could also prevent you from getting approved for credit cards in the future. All you must do is be responsible for yourself, and you should have no issues with your lender.
DON’T Switch Lenders Often
When you switch from one lender to another, it’s as if you must start from scratch with the whole process. A new lender doesn’t have a history with you, so there isn’t any trust. This will cause you to be eligible for a lower amount than you would receive from a lender you already have ties with.
Applying for a personal loan can be a little confusing if you don’t understand what you’re getting into. Remember that a personal loan isn’t a personal ATM, so you should only spend it on emergencies. As long as you make your payments on time and only accept what you need, you should be able to maintain your loan without any problems at all. And if you have any questions, don’t hesitate to reach out to your lender; that’s what they’re there for.