Mistakes do happen and when it is a financial error, the consequences can be grave. Especially with loans, the repercussions can be daunting if not addressed immediately. Couple of loan mistakes can be avoided and here we enlist five of them that should make you aware of certain loan mistakes people generally succumb to.
- Ask yourself if you really need to borrow- The over enthusiastic bank agents have it in them to forcibly persuade you to borrow money even when you don’t need it. Stay away from such traps. If they are able to lend money, you end up paying interest and a principal amount every month, thus, adding to your burden. You didn’t really need a loan in the first place. Nowadays, vigorous campaigns are launched by financial institutions to lend money to customers and before you know it, you are already making payments for a loan you didn’t need. Reject firmly any such advances of loan offers unless you profusely need it.
- Spend less than your earnings- Often, our spending outshines our incomes and we find no way to cut down on our spending. This propels you to borrow loans from institutions. The debt trap is a dangerous proposition as you might take another loan to clear off the present loan and the vicious cycle goes on. Spend as much as your income allows you.
- Know your credit worthiness- Your credit score determines your interest rate for loans. If you have a higher credit rating, you get a lower interest rate. It is highly advisable to go for a pre-approved financing (say, in case you want to buy a car). Getting a pre-approved car loan from a bank ensures consumers know the interest rates that will be applicable. Don’t let the dealer define your credit worthiness and get it from a reliable financial institution. Know your credit score from a bank or a credit union beforehand.
- Buy add-ons separately– Sometimes, along with a financial product you have taken on loan, the merchants also offer additional frills like selling extended warranties, insurance and other protections for your products. Along with the loan, these frills would add up to a huge amount you need to shell out every month. Learn to refuse to such advances and instead, buy your insurance or other extended warranties, contact a dealer available in the market and get it at a lower price.
- Don’t apply for another credit when you have one- Consumers often make a mistake of applying for another credit when they already have a loan up and running. This reduces his credit worthiness and might impact his credit score. From the lenders point such a person is a risk for them. This one blunder of his might see his interest rates shooting up or reduce his eligibility chances of a loan when he might genuinely need it in the future.
So, do follow these things, the next time you want to take a loan and ensure a healthy credit history.