Mistakes You Need to Avoid When Applying for a Loan

Everyone gets strapped for cash from time to time, and this is bound to happen even more these days given the unstable economy and the high unemployment rate. It is easy to feel a sense of shame or dread at the idea of requesting a loan, whether you’re borrowing from a bank or soliciting a family member for help. However, so long as you avoid certain common mistakes when asking for sending an application for the loan, then things should pan out well, and the negative emotions should be set aside so that you can focus on other, more pertinent goals. If you are considering applying for a loan, but unsure of how to approach this, definitely read on so that you make sure that you avoid these common mistakes.

Have Strong Credit

One common mistake people make when applying for loans is not being fully aware of what their credit score is. Your credit affects every major financial decision you will make, including applying for a loan. If you do not have a terribly high credit score, or if your credit history is a bit of a wash, then you will have trouble qualifying for certain loans that come with low or zero interest fees, or without down payments. You may only qualify for loans that will require that you pay in double overtime, which is a terrible financial decision that may end up costing you more than you realize. And, this goes for both personal loans or any small business loan you may like to apply for - your credit history and how weak or strong it is can make or break your loan application.

Shop Around

Another fairly common mistake that is made is neglecting to shop around for to understand the various rates available to you. You should never settle for the first interest rate you hear since you may very well be paying far more than you need to. It is a good idea to get in touch with different money lenders to figure out your situation. Inquire with different banks and find out more information about their fees, the terms, and conditions, and any extra hidden costs there may be. Even if you think that it is not possible, trust us: regardless of your history or credit situation, there is most probably a lender that will be able to meet your needs while offering you the best rates possible. 

As you shop around for a good loan, take the time to carefully consider what you are using it for. Are you using it to pay off certain personal debts, buy a used car, make hospital payments, or start up your small business venture? The “why” of a loan should play a big part in pointing you in the right direction of the kind of lender you need to be working with and asking for help.

You Forgot the Budget

Another rookie mistake is simply not considering your budget. What are you using the loan to pay for, and how much should it be? The idea of the loan is to help get you out of a jam; it shouldn’t be financing an entirely new lifestyle. While this sounds extreme, it can be easy to blur the lines if you are not mindful of how much you need to request then pay off in the long run. The worst thing you can do after being approved for a good loan is finding yourself stuck with an enormous balance with a high-interest rate, and no feasible way of paying it. Don’t let the rosy view of the pre-approval process make you forget the steps that come next. You need to be able to make timely repayments, and ensure that these bills do not amount to more than twenty-five percent of your income, max. Otherwise, you may very well be digging yourself into a vast financial hole that will be even harder for you to make your way out of in the future. 

Missing a Payment

Once you’ve been approved for the loan, you probably think that you’re in the clear. Wrong. If you make the mistake of missing a repayment, then that can be a huge blow to your credit score. Furthermore, it can easily push the interest rate attached to your loan to a higher level. Again, being prudent with a loan is key, since one false move can be deadly. Avoid this common mistake by setting up automatic payments so that you never have to fall behind again.

Whether you’ve found yourself in a tough spot with student loans, rent payments, or hospital bills, or are hoping to pay for a new car or a lavish wedding, be mindful of the fact that loans come with a lot of strings attached. Try to avoid these common mistakes, and keep focused on bigger financial goals to pursue in the future, as opposed to thinking of the loan as your main savior.