5 mistakes to avoid when applying for personal loans
Nowadays, personal loans are one of the most convenient ways to get out of financial difficulty. Whether you are applying to pay for tuition fees, or you want to fund a business, personal loans are a refuge for those who need instant cash. Asking for instant money may seem easy; however, there are certain aspects that borrowers like you usually neglect. These mistakes may result in an application decline, or even worse, a debt trap.
GoBear has listed down 5 of the most common personal loan mistakes you should avoid for better financial health.
1. Not knowing your credit status
Most applicants for a loan are not aware of their creditworthiness. As borrowers, you are subject to the lender’s evaluation, and this includes your unsettled debts. You can make as many applications as you want, but if you have unpaid bills or have outstanding balances, then you just trimmed down your chances of getting approved.
Knowing your credit status will help you clear out balances and start a new credit line.
2. Not comparing personal loan offers.
Comparison platforms like GoBear let you compare personal loan offers by providing information about lender’s interest rates, charges, and even maximum loanable amounts. Comparing leads you to choose the best option. Sometimes you get too overwhelmed by the offer that you forget to consider other relevant factors. Comparing options is not at all problematic. It only means you are saving yourself from the baits of a debt trap due to hidden fees you failed to check out before applying.
3. Borrowing for luxury.
Being credit-worthy doesn’t give you the license to borrow money for luxury items. Personal loans are most beneficial when used wisely. You can borrow to plan for future investment, for home renovation or even to start a small business. However, you might not want to end up holding the latest most expensive mobile phone while worrying about you’re your monthly dues.
There is nothing wrong with buying luxury items as long as you purchase those with your extra cash, not through loaned money padded with interest charges.
4. You don’t know your repayment capacity.
Most borrowers who fall for debt traps are those who do not know their entire ability to pay. Don’t pledge for a repayment amount that takes almost half of your monthly pay unless you have other sources of income. Before borrowing, create a budget plan of your receivables against all your payables. Only then can you know how much you are capable of paying on a monthly basis.
5. Applying from multiple lenders.
Oh yes, there are a lot of lenders out there ready to lend you the money even without collateral. Sometimes, all you have to do is to present two valid government-issued IDs, and you can take home as much as twice your monthly salary’s worth. Applying from multiple lenders won’t just hurt your credit score. Various applications lead to a worse financial situation because you end up grabbing whatever is available. Lenders view this as a dire need to get cash, and that may seem difficult for you to repay the money you wish to borrow.
Before applying for a personal loan, make sure you have documents to prove that your income is fixed and stable. An updated Income Tax Return should be sufficient, but some lenders even ask for Certificate of Employment and Business Permits.
It will also help if you settle previous debts before attempting to open a lending account. With the availability of a credit bureau, lenders already have an easy way of checking your borrowing profile or credit score.
If you think you are prepared, start comparing personal loans with GoBear to see which lender offers the best deal with the lowest interest rates!