Last Updated on May 20, 2021 by MoneyVisual
If you’re about to apply for a personal loan online, you may be wondering how you can get a good rate and choose the right loan.
So, in this blog, we’ll discuss a few top mistakes that people often make when they apply for a payday advance online. Avoid these missteps, and make sure you get the loan you need!
1. Not Checking Your Credit Score Before Applying for a Loan
Before you apply for a loan online, you need to make sure that you know your credit score. Even if your credit score is not great, this will allow you to do some research, and see how likely it is that you’ll be approved for a loan from a particular online lender.
In addition, checking your credit score lets you learn a little bit more about the rates you can expect to get from lenders, which helps you budget accordingly when applying for loans.
2. Assuming You Can’t Get a Loan with Bad Credit
You don’t need excellent credit – or even good credit – to get an online personal loan. As long as your credit score is above 600, you can usually qualify for a traditional online personal loan, and some lenders even work with people who have a credit score of between 500-600.
In addition, there are other alternatives to traditional online personal loans that you may want to explore if you can’t qualify, like title loans and cash advances. These loans are more expensive but are always an option if you are having trouble qualifying for a personal loan.
3. Looking Only at Your Monthly Payment Instead of Lifetime Loan Cost
The monthly payment of your loan is important, of course – but it’s only part of the puzzle when it comes to the overall lifetime cost of your loan. You need to take additional fees and costs into account when looking at how much a loan will cost you.
In addition, remember that while a longer loan term can lead to a lower monthly payment, it also dramatically increases the overall cost of repaying your loan. To learn more, we recommend using a personal loan calculator to play around with different loan terms and rates.
4. Failing to “Shop Around” for a Better Rate
Every online personal loan provider is different, and some will offer lower rates and better terms than others. We recommend doing your research and applying for loans at 2-3 different online loan providers to get the best rate. And don’t worry – even if you apply at multiple lenders simultaneously, this will only affect your credit score once!
5. Borrowing More Money Than You Need
We highly recommend never taking out more money than you need with a personal loan. Remember that every dollar you take out must be paid back – with interest. So, if you take out $10,000 and you only need $5,000, you’ll end up spending more on the loan unless you repay it early.
Budget carefully and make sure you only borrow the money you need, and if you have extra cash after a project or purchase, consider repaying your loan early to save even more money.
6. Taking Out a Personal Loan for Frivolous Purposes
Taking out a personal loan can be a good idea for some things, like starting a business, renovating your house to sell it, or to consolidate other debts like credit cards.
But you should never take out a personal loan for a frivolous purpose, such as going on a vacation, purchasing gifts for others, or buying consumer goods like clothing and electronics.
You should never take on more debt unless it’s necessary, so avoid taking out loans for non-essential purposes. If you take out loans when you don’t need them, you can get trapped in the cycle of debt, which can be very difficult to break out of.
7. Not Building Personal Loan Repayments into Your Budget
You should have a comprehensive household budget for your money that takes into account your income and all of your monthly expenses and debt payments, including housing costs, car title loans, personal loans, credit card minimum payments, and other costs.
When applying for a personal loan, it’s a good idea to take a look at your monthly budget – and see how much extra cash you have to spend on monthly repayments. This can help you ensure you don’t take out too much money, and that you’ll be able to repay your title loan easily.
If you don’t take this step, you may end up taking out a loan that you will have trouble repaying, which can put pressure on your finances and result in late payments, high fees, or even damage to your credit score.
Follow These Tips When Applying for Personal Loans & Build a Better Financial Future
Taking out a personal loan is a big financial decision, so we highly recommend that you take the time when considering a loan, and that you avoid these common mistakes and pitfalls that people often make when applying for a personal loan.