There’s no easier way to solve your financial dilemma than to secure a loan. You can get it from a trusted individual or a financial institution, like banks. If you’re planning to get a loan for whatever reason then you might be in for a big surprise.
Getting a loan isn’t as simple as you think. It needs a lot of knowledge and a bit of research to find the best loan that will fit your needs. If you’re not taking this seriously, then you’re at risk. Here are 10 reasons why you might be a rookie in loans.
Taking The First Loan Right Away
It’s simple to find a loan with attractive terms and apply for it immediately. You might even think that you’ve done a good job. However, little do you know that there are some better ones available if you search further.
One mistake rookies often do is to take the first loan that comes their way. Just like shopping for a new car, you need to look around and find the best loan that will fit your needs. Also, read the details before you sign the agreement. There might be some crucial terms that might impact the way you’ll repay the debt.
Not Comparing Loans Correctly
Any rookie getting a mortgage loan is guilty of this mistake: Getting lured by a low-interest rate and not considering the cost of fees. You might not be aware of it but a lower interest rate loan could actually be more expensive than a higher rate one. Over time, those fees can pile up and outweigh the interest savings.
To save yourself thousands of bucks, use the annual percentage rate (APR) to compare loans. A trusted lender will provide with the APR information. If not, then you can forget that lender and look for another.
Misinterpreting The Rates
The interest rate highly affects the cost of your loan and how it’s computed. There are two types of interest rate- variable and fixed.
The fixed interest rate generally can’t change once funding is received. The variable interest rate, on the other hand, could change anytime. More importantly, you should know how the interest is computed.
- Simple interest rate = loan amount (principal) x annual interest rate x duration of the loan
- Compound interest rate = Principal [( 1 + nominal interest rate) # of compounding periods) – 1]
As shown above, the compound interest rate could increase your balance. You’ll pay interest on top of interest despite paying every month.
Missing To Check Out Your Credit File
When applying for loans, it’s necessary that you check your credit file. First, its access is for free and second, you need to see whether all the information is correct. Although having it in order doesn’t guarantee that you’ll be approved for a personal loan, it would somehow give a higher level of confidence. If you find something amiss in your credit file, revise it immediately because inaccuracies will hurt your credit score.
Ignoring The Terms And Conditions
In a rush to secure a loan, many newbies forget to look at the finer details of the agreement. Just take for example an app-based borrowing environment. Only a few would really read the full details. Many would just simply drag down the scroll bar and click the checkbox as a sign of accepting the terms and conditions.
Ignoring this part may actually put you at risk. For all you know, there might be high surcharges for paying late. If you only knew about this term, you could have negotiated for a better repayment term before signing the agreement.
Over Sharing Documents
Loan disbursements become easy with the fulfillment of know your customer (KYC) standards in an online environment. Uploading a lot of documents including your income statements seems to be quick with the prominence of a smartphone equipped with a high-resolution camera.
However, you shouldn’t share too much information to your lender because that will compromise your data privacy. Only share information that’s relevant to your loan. Ask your lender on the specific documents that they need.
Not Creating A Payback Plan
Taking on a loan without thinking of how to pay it back could leave you in a worse financial condition. Some financial institutions won’t approve your loan application unless you present a plan on how to pay them back. Creating this type of plan shows them that you’re ready to consistently pay them on time.
Having a plan would also give you peace of mind throughout the duration of the loan. It also increases your chance of getting a loan approval since you pose a less risk to your lender.
Lying On A Loan Application
Now, the last thing you need is to face criminal charges. When applying for a loan, avoid falsifying your records. You won’t only be denied with the loan application but you can also get jail time. Be honest and reveal the real score about your expenses, income, and any other information required by the lender.
Relying Too Much On Credit
Taking a loan shouldn’t only be your only resort to get cash. Explore other means, like selling gold or land. Nothing still beat the value of cash in hand.
Asking More Than You Need
Banks use different formulas to determine the maximum amount you can afford to take. While this might sound good, don’t give in to the temptation. Likewise, we also don’t want you to underestimate what you need or you may have to return to the bank and undergo the same loan process again.
While you can blame the moneylender for irresponsible repayment terms, it’s your duty to make sure that you get a loan within your means. Only borrow what you think is enough for your need or you’ll suffer the consequences. Make sure that you can repay the loan throughout its duration so you don’t skip a payment.