Installment loans and lines of credit, if used properly, revamp your finances. They give you the ability to consolidate several loans and credit cards, plus some cash to pay off those small bills that were forgotten. At the same time, you can lower your monthly payments, which allows you to put some money in savings. In short, a loan can give your finances the boost they need.
That said, people make plenty of mistakes when they’re applying for loans, whether they be online loans or loans they get from their local lending institutions. Unfortunately, these mistakes can be costly. Here are the seven most common mistakes that loan applicants make when they’re applying for a loan online.
1. Be Realistic About Your Credit
A lender will most likely check your credit score before making a decision about lending you money. If you’re applying for a loan that requires collateral – say a title loan – then your credit score isn’t such an issue. However, if you’re applying for a signature loan, then your credit score has a great impact on whether or not that loan will be yours. Essentially, you’re using your good credit score as your collateral.
If you’re not sure that your credit score is high enough to get a loan, then you may want to sign up with a credit-checking site, like Credit Karma. You can check your score regularly. It’s free to use. Typically, a good credit score is in the 700s, though it is possible to find loans that don’t require as high a credit score. Most people’s credit scores range from about 600 to the mid-700s.
2. What Are Your Options?
This brings us to the next thing you should consider: your options. While it’s logical to apply for a loan at your local bank, it’s not the only option. Online banking has become quite popular. Going this route allows you to see all of your options. Not all lending institutions will offer you the same loan rate. Some may not offer you a loan at all.
Broadening the scope of lenders that you’re willing to talk to about a loan increases your chances of getting the loan you want at the rate you want. This can be especially helpful if your credit score isn’t very high; usually lenders will charge more for a loan if your credit score is less than perfect. Even among lenders that will loan money to people with less-than-perfect credit scores, there will be a difference in the terms of the loan. Get the best one you can.
3. Refusing to Negotiate
If you wind up getting a couple of loan offers, then you should always negotiate. You may be able to get a loan at a rate that’s better for you, and you are now in a position to be a bit choosier because you have more than one loan offer. Take advantage of this if you can.
4. Don’t Be Misleading
Overstating your income and assets can backfire on you. Many lenders will not verify your income, but that doesn’t mean you should falsify it. The penalty can be steep for doing so. It’s also against the law. Aside from all of this, if the lender does find out that you intentionally misrepresented your income and assets, you could be out a loan.
5. Not Adjusting Your Budget
Your old spending habits can get you into trouble if you’re not careful. You’re borrowing money so that you can consolidate your loans and/ or credit cards. If you take out a loan for this purpose and then continue to use your credit cards, then you’ll be in worse shape than you were before you took out the loan. Always address the behavior that led you to getting into debt in the first place.
6. Unrealistic Borrowing Expectations
You may be tempted to borrow too little money or too much. Either of these “options” tends to put up the red flag for lenders. If you borrow too little, it will look like you didn’t give your finances a realistic assessment. You will also be adding more to your debt if you don’t cover everything; not borrowing enough leads to this eventuality.
On the flip side, you shouldn’t borrow so much that you can’t afford to make the payments. To avoid this problem, gather together all of your bills and take a realistic look at the final totals of each of your debts, even if it’s painful. You’ll be in a better position to accurately represent what you need to your lender.
7. Not Reading the Fine Print
It’s easy to skim through all those pages and page of stuff; you just want to be done filling out paperwork and getting on with this. However, this practice may come back to bite you in the form of hidden fees, increased interest rates, etc.