Personal loans, also known as signature loans, help borrowers in many ways. Whether you're looking to reduce your borrowing cost by transferring higher interest credit card balances or to manage your money by consolidating several other credit accounts, a personal loan may be a lower cost and easier-to-track option. To make the best of your own loan, take a quick look at these common personal loan mistakes.
Mistake #1: Not Reviewing the Loan Terms
Don't get so blinded by an amazing "low rate" offer that you forget to read the fine print. Do you know how much your personal loan really costs? The loan terms include these details, so don't make the mistake of just skimming over them, or worse, not reading them at all. Make sure you know exactly what you're responsible for when it comes to the finance charge and the APR, which is the cost of credit as an annual percentage rate. Watch for any extra costs or fees like processing and/or application fees, lien fees, and origination fees. And if you hope to pay your loan off before the term is up, look for any references to prepayment or payoff fees.
Mistake #2: Not Keeping Track of Multiple Loans
If you have good credit and a solid employment history, you may find it easy to qualify for a personal loan – making it almost too easy to accept any and all offers. One of the personal loan mistakes that may cause major problems down the road is simply taking on too much debt, and not keeping track of the total of what you owe, the different interest rates, and the payment amounts. Not having a plan for the funds can lead to indiscriminate spending, leading to more financial woes. Not keeping track of your loans may lead to missed opportunities to consolidate and lower your interest rate. It can also result in budgeting problems and/or missed payments because of multiple monthly payments.
Mistake #3: Completing Multiple Loan Applications
If you've applied for several loans or other credit products such as a mortgage, credit line, or credit card lately, it could actually have a negative impact on your credit score. This could mean that when you do get a loan approval, it will be at a higher rate, because a lower credit score means a higher risk to the lender offering the loan. Having too many recent inquiries may even result in a loan application being flat out denied by some lenders. To avoid this, compare personal loan rates and features online and pick the loan best suited for you before completing the application.
Mistake #4: Not Shopping Around for the Best Personal Loan Rates
Accepting the first offer is one of the most expensive personal loan mistakes. Rates, fees, and terms can vary greatly from one lender to another. Reviewing loan offers to compare the actual total costs may shave hundreds of dollars off the cost of borrowing money.
Remember, used wisely, credit is a tool that can help you get ahead financially. Do your homework before completing an application to help avoid one of these costly personal loan mistakes.