At least one point in an adult's life, we take out a loan to buy things, pay for things, or even start a business. Personal loans can be a wonderful solution when you need fast cash with no collateral and a few questions asked. Sometimes, you get approved for your personal loan almost immediately.
Some lenders these days boast of 5-30 minute approval to cash-out, but it can range while some still take 24 hours up to 5 business days or a week to process loan applications and approvals.
But not everyone makes use of these personal loans to their fullest potential. Instead of gaining more, those people end up losing money and putting themselves in even bigger debt. This can cause not just financial problems, but problems at home as well.
Of course, not all the mistakes we make when we take out a personal loan leads to debt, bigger financial problems, or divorce. Some of them are just minor enough to cause inconveniences, like prolonged application processing and so on.
However, these are the costly mistakes you would still do well to prevent:
1. Compulsion borrowing
Think before you get a loan! Getting a loan is a huge commitment. It's like entering into a relationship. Just because a family member told you that you had gained weight doesn’t mean you need to run to the bank and get a loan so you can Zumba it up, enroll yourself in a CrossFit class, or even get yourself some medical treatment to get rid of that "excess fat" that might not even exist.
Think your decisions through before doing them. It might save you a lot of time, effort, and money.
2. No long-term plans
Impulse borrowing actually can lead to this problem. When you take out a loan on impulse, you’re not completely planning out your long-term finances. That is, you’re not considering your day-to-day expenses for the future. Not having long-term financial plans can get you into a lot of problems, such as debt, inability to pay bills, and almost always being short on money to buy food and groceries: the basics you need for everyday living.
So remember, when you're taking out a loan, also think of the future and how you are going to repay the loan, as well as where you will be getting the money to repay it with.
3. Incomplete paperwork
Forgetting to submit all the required paperwork and documents can lead to a very annoying and frustrating loan application process. Usually, it’s the borrower's fault for not reading the full list of requirements, thinking that since a personal loan is a quick way to get cash, it can be easily done with just signing a few papers. It’s not.
You need to prove to the bank or the lending agency that you’re capable of repaying the loan amount you’re taking (plus interest). Not submitting the complete paperwork and requirements will only delay your loan application, and delay whatever plans you have with them.
You might have to keep coming back and forth to the bank or lending agency just to have your application approved. Before applying, make sure to have all necessary requirements on hand (extra photocopies won't hurt, either) for a smooth and easy application.
4. Incomplete disclosure
You have to complete your loan application form with 100% complete honesty, no ifs or buts. Be as exact and precise as you possibly can. Why? Not telling your bank or lending agency the truth can and will bite you in the ass eventually.
Incomplete disclosure can lead to court cases or even criminal cases since you are committing fraud. Worse, you might be using someone else's information as you fill out your loan application, and that is identity theft. Don't do this.
If the application tells you to disclose information that they need to complete the application, then do so. If you’re uncomfortable with sharing that information, ask the bank or lending agency how to go around this, and they will be more than happy to help.
5. Borrowing for someone else
Some people borrow personal loans under their name but give the money for someone else to use. Don't do this! This is problematic since the other person isn't the one paying the loan back with interest. What's more, the other person can just run off with the money and leave you in the dust, paying off the loan and its interest without you reaping any of the loan's benefits.
6. Ignoring the fine-print
Since getting a loan is also a form of binding contract between you and your bank or lending agency, you have to read the fine print. You might be missing important information about the loan you’re getting, such as a flexible interest that can change every month, or that important changes to your loan term can be changed by the bank without your prior knowledge unless you ask for it. These are details that you need to know since they can make or break your application. Read them before you sign the dotted line!
7. Forgetting to compare
To get the most out of your personal loans, don’t forget to compare the loan products available to you. Check their interest rates, annual percentage rates, and loan tenures to make sure you are getting the personal loan product that’s right for you. This will help you save money as well, in the long run.