In certain financial situations, personal loans are the best possible scenario.

Whether you’re attempting to consolidate your debt so you can pay it off faster or you’re tackling a home renovation project, a personal loan can give you the funds you need when you need them. Although taking out a personal loan is a relatively common thing to do, there are still some mistakes that people make regularly when managing their finances. If you’re trying to get your finances under control or learn how to manage your loan responsibly, this article is for you. 

Rushing Into A Loan Offer

There are times where you have no choice but to rush into a loan offer and we don’t judge what you do to handle an emergency. When we say rushing into a big financial decision is a bad idea, we mean when it comes to debt consolidation or payday loans that may be helpful in the moment but cause more harm than good later on. If you’re able to spend some time evaluating your loan offer and calculating a budget for yourself to ensure you can pay it back, you’ll be able to accept a loan offer that is right for you.

Ignoring the Reason You’re in Debt in the First Place

There are a lot of reasons people find themselves in debt. There are some people who have debt because their car broke down and they had to get a new car long before they were ready to do so. Sometimes people have to pay for medical emergencies. Those people may not have had any choice other than entering into a personal loan of some kind.

On the other hand, there may be people who are in debt because of unwise spending decisions and living outside of their means. There’s no judgment here, but if you are in debt because of a reason like that, it’s important to work on the emotional side of getting out of debt as well as the physical. Evaluate how you got there and come up with some strategies to avoid finding yourself back at square one.

Picking the First Loan Offer You Receive

There are a lot of lenders out there. If you’re currently in any kind of debt - good or bad - you probably have received at least one piece of mail from at least one lender that contains some kind of offer. Sometimes these mailers will list a dollar amount and say that’s how much they can lend you. Sometimes they will say you’re already pre qualified and some will invite you to prequalify online. While these mailers may be annoying, some of the offers that are sent through mail are legitimate and the lenders who send them offer a great service.

When you are ready to accept a loan offer, it’s important that you spend time comparing and contrasting loans instead of just accepting the first one to contact you. There are websites that allow you to do this easily - you can even fill out a single form and get a list of loan offers that you are prequalified for. Spend time understanding all the fees and interest rates associated with each loan before you apply.

Making Late Payments or Paying Just the Minimum

If you’re only paying your minimum payment, that’s not necessarily a bad thing, but it might cost you more in the long run thanks to the interest you’ll be paying. If your lender allows you to pay off your entire balance without any penalties, then you should absolutely take advantage and pay it off as soon as you can. Even if you can’t pay the entire amount off, consider rounding your monthly payment up in some way. Even a few dollars every month can have a big impact. 

You’ll also want to avoid making late payments because the fees can be astronomical and late payments that aren’t paid within 30 days of the due date can be reported to all three credit bureaus which can hurt your credit score in the long run. A late payment can cause damage to your credit score that can take a while to recover from. 

Not Doing Research on Potential Fees and High Interest Rates

When you select the loan offer you’re going to accept and sign any forms necessary to start the loan process, your next step should always be to fully educate yourself on the terms of your loan and every potential fee or difficulty you may foresee. 

For example, some loans will charge you a fee for paying a loan off early. This is not as common and you’re likely to be able to find a loan offer that does not require this. But if your loan offer does indicate that this fee will be a part of your loan offer, it may be best to walk away. 

A more common type of fee is an origination fee - this is a fee that the lender charges you at the beginning of your loan term. Usually this amount is deducted from the amount that is deposited into your account or sent to you initially so you won’t have to physically make the payment, but it’s still an amount that will be taken and included in your total loan payments. 

Although these mistakes are common and can cause problems for you down the road, they’re easily avoidable with a bit of research, preparation, and financial responsibility. As long as you are well-informed about your loan and keep up to date on payments and other aspects, you will likely find personal loans to be rewarding and helpful.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. You should not construe any such information or other material as legal, tax, investment, trading, financial, or other advice. Please seek a professional financial advisor before making any investment decision. We are not responsible for and do not endorse or accept any responsibility for the availability, contents, products, services or use of any third party website as stated in our privacy policy.