Sometimes you run short of cash for one reason or the other. Perhaps you have come across a profitable venture, but you don’t have the resources to take advantage. Alternatively, you could have an emergency that needs urgent cash that you may not have readily available. In such a case, you can apply for a personal loan that helps you leverage on your ability to repay back the debt. Although a personal loan can be great in such circumstances, it can also be dangerous, especially if you don’t know what to look out for. Here are some of the common pitfalls of this type of lending, and how you can avoid them:
1. Failing to Distinguish Between Needs and Wants
Some people make the mistake of borrowing to purchase what they want instead of what they need. The difference between a want and a need is that the latter translates to something that you can’t do without. An example of a need is food or rent, while wants relate to luxury items.
Make sure that before you think about taking a personal loan, you have confirmed the urgency of the item and other possible finance options. There is no sense in committing yourself to debt just to buy something that you can survive without. If you really want to purchase that item, you are better off saving and using your money once available.
2. Borrowing in Excess
The lender can give you the option to take a second loan if you keep your loan repayments constant for a specified period. The mistake that people make is that they get carried away and borrow more money than they need. They forget that loans can be expensive, and the more you take, the more you have to give.
Don’t become a victim of this fallacy after you get that personal loan. You can avoid this temptation by using some of your personal savings to cover any additional expenses that may come up when using the loan. On the other hand, if your savings are not enough, try to cut costs on other things so that you can have more cash at hand.
3. Settling too Fast
Another mistake that some people make is going to the first bank or lender that they know to get a personal loan. They take whatever deal they can get because they trust the person or institution. The problem with this move is that you miss out on other, potentially superior offers.
Anytime you want to get a personal loan, take a few days to do some research and find out what the market has to offer. There are new players like Gladiator Lending that can have much more favorable conditions and repayment terms. Taking your time can help you find a cheaper personal loan.
4. Looking at One Factor Alone
Another mistake that some people make when selecting a personal lender is looking at one thing. For most people, it’s the cost of the loan. Although there is nothing wrong with this, there’s much more to a lender than just costs.
Take the example of Gladiator Lending. If you truly want to have an amazing personal loan experience, look at what they have to offer. Make sure that they have an excellent support system that can guide you whenever you need clarity on something. Having more than one perspective on a lender opens your eyes to numerous possibilities.
5. Hidden Fees
Another mistake that people make when taking a personal loan is failing to read the fine print. They just sign the papers in a hurry because they want to get their hands on the money. This action may work against them when they want to repay the loan. For example, it may not be such a good idea to repay more than the required amount every month since it can attract more charges.
To avoid such a mishap, ask your lender if the personal loan has precomputed interest. Under such an agreement, the bank charges you more for paying back more than what is required every month. Other than that, make sure that you take your time to read the fine print to find out more about any hidden charges.
Taking a personal loan is a great idea if you want to finance a need, and you can afford to borrow. However, if it’s your first time borrowing, take note of the above mistakes and try to avoid them so that you don’t find yourself in a lot of trouble.