A personal loan can be helpful in fulfilling your short-term financial needs. These loans can be effective financial tools to meet your immediate monetary requirements and pull you out of the monetary crisis. Many people use personal loans to pay for expenses related to home renovation, wedding, holidays, credit card debts, etc. It is a form of an unsecured loan, which means it does not require any type of security. However, this is the reason personal loans also attract a high rate of interest when compared to secured loans.
Personal loans are quickly processed and disbursed, making them an ideal solution to temporary financial troubles. However, it is important to know that even the smallest mistake made by a borrower can suck them into a debt trap. So, it goes without saying that you should steer clear of mistakes when taking a personal loan.
If you are looking to apply for quick loans near Colorado Springs or in any other part of the country, you need to avoid these seven common mistakes.
1. Shopping for Loans Recklessly
We have always been taught to shop for quotes and look for multiple providers before zeroing in on our final option. However, did you know that this is the worst strategy when you are applying for a personal loan? Each time you submit a loan application in a bank, the lender will run a credit check that will put a dink on your credit scores. Shopping for a loan from too many banks in a short period of time affects your credit report and also your loan application. This can also act as one of the reasons why your loan application may get rejected.
2. Dishonest About Liabilities
If you think you can hide your current liabilities from your lender, then you are wrong. Each bank conducts a thorough due diligence of each applicant before approving their loan application. Withholding information that surfaces in their background check can lead to rejection of your loan application. You must share details of all your existing liabilities honestly for the lenders to calculate your loan eligibility accurately.
3. Miscalculating Your Repayment Ability
Like they say, never bite more than you can chew; and same holds true for borrowing as well. Never borrow more than you are capable of repaying. Before you apply for a loan, you must meticulously assess your repayment capacity and ensure that you pay back your loan without struggling to manage your expenses. There are many online tools that you can use to check the loan amount that you can repay as per your income and expenses.
4. Not Checking All The Options
Before applying for personal loans, many borrowers do not go the extra mile in checking their available options. Sometimes you can meet your immediate financial need by borrowing from your friends or family. More often than not, you will be able to repay the borrowed amount via friendlier repayment terms. However, if you must absolutely apply for a personal loan, be sure to compare all the options as per payment terms and conditions, interest rates, repayment plans, etc.
5. Choosing A Longer Tenure
Many borrowers instinctively choose a lengthier tenure to lower their EMIs. However, did you know that a longer tenure would also mean a higher interest amount? Sometimes by the end of your loan, you would have paid an interest amount which is as much as the loan amount! Rather than getting attracted to lower EMIs, try to go for a shorter tenure if your income permits.
6. Neglecting The Fine Print
The borrowers are often only concerned about the loan amount and the interest rates. It is common for people to sign the dotted line without going over the terms and conditions properly. What if you want to pay off your loan before your tenure ends to save on the interest? Are you taking a watertight loan that will charge you obnoxious foreclosure charges to close the loan sooner? What happens if you miss the payment once or more? What will be the bouncing charges? These are some pertinent questions that borrowers never think about and consequently, they often end up dealing with rude shocks later.
7. Take An Emotional Decision
Sometimes, your situation is so desperate or your requirement is so urgent that you might end up taking a personal loan at an unreasonably high-interest rate. Impulsive decisions like a loan for an international vacation can cost you heavily in the long run. Simply put, when applying for a loan, you should assess your needs and available options wisely. You should only choose the one that aligns perfectly with your lifestyle.