HUGE Mistakes to Avoid When Taking Out a Personal Loan

If your credit is fair and you have steady employment, there is a pretty good chance you can take your pick of finance companies or banks, walk in, and walk away with a personal loan. Personal loans almost always afford lower interest rates than a cash advance and can usually give you a larger amount of money. However, borrowing responsibly is just as important with this loan product as it is any other time. Here is a closer look at a few of the biggest mistakes personal loan borrowers make and why you need to avoid making them. 

Mistake: Not being open about earnings or financial responsibilities to obtain a higher loan amount. 

Why? Many personal loan providers use your current financial situation and how much of a payment you could afford to pay to determine how much money you can qualify for. You may be tempted to exaggerate your earnings or downplay how much your monthly bills are so you can qualify for a higher loan amount. However, this dishonesty will usually just land you in hot water. If you end up with a loan payment way too high for your monthly budget, you will have a hard time repaying your loan and could ruin your credit. 

Mistake: Not paying close attention to the fees involved. 

Why? Personal loans naturally come along with interest, but, in a lot of cases, inexperienced buyers look for the interest rate and never give regard to any other fees associated with the loan process. Some lenders will charge processing fees, financing fees, and even require that you pay for insurance to cover the loan if something happens to you. All of these extra charges can mean a higher monthly payment and a higher amount you will have to repay in the end. This is one reason why it is always best to find out what terms are offered by a handful of lenders before you accept a loan from a specific place. 

Mistake: Borrowing more than what you really need. 

Why? Personal loans are sought for everything from car investments to holiday spending money. Some borrowers will take out a personal loan simply because they are trying to establish their credit or give their credit score a boost. Whatever your purpose for seeking a personal loan, don't automatically accept the highest amount you're offered if you don't really need it. Taking out a small, short-term loan will mean you can repay quickly and keep interest charges as low as possible. 

For more information about personal loans and the mistakes you should avoid making when you apply for one, talk to a lender like Lisbon Community Federal Credit Union.