Taking out a personal loan can be a great way to pay for big expenses such as travel, a wedding, or renovations. They can also be great for debt consolidation. However, they are a significant financial commitment and therefore, they must be considered carefully.
Something to also consider are the potential mistakes you might make. That way, you can be best prepared to avoid those mistakes, and prevent any headaches!
Here are 5 common mistakes to avoid when getting a personal loan.
1. You Don’t Shop Around
It’s important that you take the time to do your homework before just blindly applying to your loan. You don’t want to just take the first loan option that comes your way, as it’s likely not the best one for your needs. Be sure to compare different lenders, consider the terms and conditions, and the repayment options available. Luckily, Money Compare makes it easy to compare different personal loans and options out there, all in one place, so you don’t need to have a million tabs open trying to decipher all the information and choices. It’s important you take the time to consider the options properly so you can be sure you’re making the right decision.
2. You Don’t Compare Interest Rates
It would be a costly mistake if you settle on a high interest rate when there could very likely be a better deal out there. Consider what you are using the loan for. Consolidating debt? Financing a car? Or throwing your dream wedding? Searching for the right loan, with the purpose in mind, and with the help of Money Compare’s comparison tool, will help you narrow down your options, and find the best fit with a good rate.
3. You Don’t Consider Your Credit Score
Your credit score can influence the outcome of your loan application.
If you have a low score, you may find yourself with a high interest rate. Lenders will charge a higher interest rate to those with a low credit score as a way to compensate for their risk in loaning to you. They may end up just rejecting your application.
But if you have a good credit score, you will be a great candidate for the loan. Lenders will be able to see that you have a history of making payments on time.
You can improve your credit score, before applying for a loan, by making sure you pay your bills successfully on time for a few months. These bills could include your rent, mortgage, and utility bills such as power, broadband, and water.
4. You Don’t Make Repayments on Time
It’s important to remember to pay your loan back on time, as per the contract terms. So, if you are meant to make payments fortnightly on Thursdays, make sure those payments are made. If you miss a payment, this is recorded on your credit history. You could also be subject to default payment fees, which are just unnecessary extra fees that you can avoid.
You can make these payments happen in the background by setting up an automatic payment such as a direct debit. This means you can ensure the payments go through on time, without having to think about it!
5. You Don’t Consider How Much You Can Afford
Remember that when your loan is approved and paid out, you’ll need to start paying it back. You’ll pay it back on a schedule as determined by your contract terms. This means you’ll have another expense to pay on the regular. It’s important to make sure that you can afford this extra regular bill alongside your other expenses such as your rent and utilities. Check your budget before you apply, crunch some numbers, and make sure you can afford the additional payment.
Compare Personal Loans
Money Compare makes it easy and quick to compare personal loans so you can be sure you are making a fully informed choice. It’s the most effective way to find the best deal possible so you can avoid paying too high an interest rate. Why pay more, when you can find a better deal?
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