Mistakes people make when getting a loan

June 13, 2018
Applying for a loan can be confusing and maybe even a little intimidating. You have to choose a source for your loan, worry if your credit history is good enough, submit to questions that you may not feel comfortable answering and then worry about getting approved or denied for days (or, often, for weeks) before you get an answer. During that time, you’re probably worrying if you filled out the paperwork correctly or if you could have done something differently to improve your chances.
Mistakes people make when getting a loan

Even after you get the loan, you might be concerned about being able to make payments on time or having the lender change the interest rate.

Many borrowers make the same mistakes when applying for a personal loan. These mistakes are common, but they are easily avoidable if you know what to look for.

Borrowing more than they need

This can be an issue if you get a personal loan from a credit union or a bank. They may have a minimum requirement for a personal loan, so you may feel compelled to borrow more than you need to meet the minimum amount. Unless you pay off the excess money that you borrowed right away, this will only serve to increase your debt. An online personal loan, however, can be more flexible. The minimums are very low, so if you only need to borrow a few hundred dollars, then that is all you have to borrow. This makes it much easier to manage and repay your loan.

Putting it on a credit card

Especially if they are worried about getting approved for a loan, people will instead get a credit card or max out a card that they already have. Yes, the chances of getting approval for a credit card may be better than for a personal loan, but it is easier to build debt with a credit card because you can use it repeatedly.

Putting collateral at risk

If you use a secured loan, you will risk your home, car or other financial assets to secure the loan. Again, if you only need to borrow a modest amount (less than $1,000), then you should not have to get a secured loan. Online personal loans and some personal loans from banks do not require collateral (in other words, they are unsecured). If you can get a loan like this, then why would you apply for a secured loan (unless you needed to borrow a significant amount of money)?

Not taking your credit score into account

A poor credit score (or even an average credit score) hurts you in two ways. First, it may disqualify you from getting a personal loan from a bank. Second, if you do get a loan, it may come with a higher interest rate. Online personal loans have an advantage here because most online money suppliers do not require a complete credit check. They will only ask to see a pay stub and bank statement. This means you can qualify regardless of your credit score.