You’re excited about the prospect of applying for a personal loan and getting your hands on the money you’ve been dreaming of. In fact, you’re so excited that you begin to lose track of what you’re actually doing. Let’s learn how to avoid personal loan mistakes.
If you’re not careful, you could end up making one of many mistakes that you’ll eventually regret. Here are just a few that you must protect against:
1. No real reason for applying
Just because you qualify for a personal loan doesn’t mean you should apply for one. It’s critical that you have a clear idea of how you’ll use the money, such as a home renovation project, traveling the world, or paying for your child’s wedding.
If you’re applying for a personal loan without a solid idea of how you’ll use the funds, it’s probably best to take a step back and reassess for the time being.
2. You don’t know how much money you need
Personal loans greatly vary in dollar amount, typically ranging from $5k to $50k or more. Once you have an idea of how you’ll use the money, you must then decide how much you actually need.
Take for example a kitchen remodel. There’s no standard price for this, as it depends largely on the scope of the project, type of materials you’re using, and whether or not you’re hiring a professional.
Create a budget before applying for a personal loan, as this will give you a clear idea of exactly how much money you need.
Tip: you don’t necessarily have to borrow every last dollar, as you may be able to access other funds, such as money that you’ve personally saved.
3. Choosing just any lender
You’re in such a hurry to secure a personal loan that you find a lender in your local area, apply for a loan online, and accept the terms and conditions.
Even if the terms appear to be favorable, you’ll never know for sure until you compare them to other lenders.
It takes some additional time, but compare a minimum of three to five lenders before deciding which one is best for you. Focus on both the terms and conditions of the loan, as well as the reputation, reliability, and customer service provided by the lender.
4. No plan for paying it back
Don’t borrow any amount of money until you have a clear plan of how you’ll pay it back. Answer questions such as:
- What is the term of the loan?
- How much money can you comfortably afford to pay toward the loan each month?
- What will happen if your financial circumstances change, such as losing your job?
If you don’t have a plan for paying the money back, you could find yourself in a bad financial spot in the near future.
These potential mistakes aren’t meant to scare you away from applying for a personal loan. Instead, they’re meant to show you that there’s a lot to think about as you go through the process.
When you take the right approach, you’ll find yourself in good position to apply for a personal loan and use the funds in a responsible manner.