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5 mistakes people make when applying for a loan

[May 6, 2011.]

 

Do not apply for a personal loan without making sure you have done everything you can to get the best deal. While it may be tempting to go for the first loan you come across, that could be a big mistake. Use the following checklist to avoid these common mistakes.



  1. Not shopping around to compare loan products. Not all lenders are the same, so fees and terms of personal loans can differ quite a bit. Take the time to evaluate different lenders and loan packages to get the right fit. It's also important to research any lender you plan to do business with to make sure they have a solid reputation.

  2. Borrowing money from unfamiliar loan companies.There are many companies out there offering to lend money. Unfortunately, there are a lot of scam artists just waiting for a chance to pick your pockets. If you feel that something isn't quite right with a particular lender, go with your gut instinct.

  3. Not doing the math. It is important to understand exactly how much getting a personal loan will cost. In addition to the principal being borrowers, you'll pay interest and fees. Don't let lenders focus only on monthly payments when you get loan quotes. You want to see the amortization schedule to know exactly what you owe.

  4. Accepting a higher interest rate than what was advertised. Only people with the highest credit scores qualify for the best interest rates. So if you don't have the best credit, you may be offered a higher interest rate than what was advertised. However, that doesn't mean you have to borrow money at the higher rate. It may make sense to put off getting a personal loan until you can clean up your credit enough to qualify for the lowest rates.

  5. Not having a plan to pay off existing debt. For some people it makes sense to get a personal loan for debt consolidation. The funds can be used to pay off existing bills and lower the amount of interest paid out. But getting a personal loan is likely to be a mistake if you continue running up old credit lines. Make sure you have a clear plan for debt reduction before borrowing more money.


Looking for a loan


When shopping for a loan, don't limit yourself to traditional banks. Check out loan products offered by credit unions to see if they have a more competitive package. If you choose to apply for a personal loan online, make sure you know exactly whom you are doing business with.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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