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6 Common Mistakes People Make When Applying For A Loan

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Jim Hughes, the Director of Content at OpenCashAdvance.com, has significant experience covering financial and business topics. He also worked as a financial advisor at a bank and provided consulting and advice about budgets, savings, insurance, stocks, retirement funds, tax advice, etc. 


Applying for a loan can be so intimidating at times. You have complete strangers looking into your financial history. There’s this uncomfortable feeling that you might get judged and a genuine fear that you might get rejected or, worse…get unfair terms. 

Fortunately, it’s nothing that a little bit of confidence and relevant financial knowledge can’t fix. So in this article, we will talk about the most common mistakes that people (especially first-time borrowers) make when applying for a loan.

1.  Not Having a Clear Objective

You probably have an idea why you need a loan, but do you really know the specifics? For instance, how much do you need? When do you need the money? How much time do you have for the application process? Do you really need to borrow the full amount, or are there other earning methods you can consider? 

Knowing these details will help you determine the best loan and payment plan for your needs and preferences. You can also use it as a reference when you’re negotiating terms with your lender.

2.  Not Checking Your Credit Score

Aside from your objective, you also need to determine your eligibility. Not only will it help you better discern the best loan option for you, but it can also give you time to prepare before applying. 

Those who have a credit score of 600 or less should consider taking some time to work on improving it specifically. You can check for erroneous entries, pay off student debt, or even take out a smaller line of credit first to give it a little boost.

Related: When To Use A Personal Loan To Consolidate Credit Card Debt [With Expert Advice]

3.  Lying about Your Financial State

Not everything relies on your credit score. After all, this financial report only reflects an aspect of your financial state. You can be sure that the lending company will scrutinize other areas as well, such as your income and other responsibilities.

This investigation can come in the form of an interview or the submission of various documents. Whatever the case, we understand why you might be tempted to “talk up” your actual state a bit, thinking that it could improve your chances. 

Please refrain from doing so. For us, this is probably the worst mistake that you can make when you’re applying for a loan. 

If your lender finds out before handing you the money, then they might cancel an otherwise approved application. On the other hand, if they find out after handing you the money, they can demand immediate repayment. 

Either way, the lender has the option to report you to the authorities for fraud, a criminal case.

4.  Failing to Shop Around and Do Your Research

Focused young businesswoman manage income calculate tax rates

Now that you have the complete picture of your financial needs and state, you can finally move on to the next step: more research. We are very fortunate to live in a world where there are various ways to get a line of credit, so don’t take the first offer you get! Take advantage of this opportunity and shop around for other loan plans. Pay attention to each plan’s interest rate, loan term added fees and offered flexibility. 

If there’s a lending company or financial institution that doesn’t wish to share this information with you, then it’s a good sign to remove them from your list. Reputable companies are truthful and transparent.

5.  Applying for Multiple Loans at the Same Time

Applying for multiple loan opportunities seems like a good idea to increase your chances, right? That might work for other types of transactions, but not in the loan applications. That’s because financial establishments typically include a hard credit check as part of their application process, and hard credit checks deduct points for your credit score.

It helps to apply for a loan that you have a good chance of getting approved for. It’s also ideal for focusing on one loan application at a time. If you do get rejected for one, then you just have to repeat the process again. Reassess your financial situation, perform steps to increase your credit score, shop around for the best plan, and apply.

6.  Glossing through Your Terms and Conditions

Always read the terms and conditions of any contract before signing it. This doesn’t apply to loan applications alone, but for other kinds of transactions as well.  We know that they’re not the easiest documents to read, so allow us to share a few tips with you:

Don’t be ashamed to pull out your dictionary.

A lot of terms and conditions use technical language and industry-related jargon. There’s no harm in googling what certain words mean on your phone. 

Don’t be afraid to ask questions.

In relation to the previous tip, you can always ask the agent or account manager about any parts that you might be unsure of. 

Don’t skip sections written in all caps.

These parts usually contain the most important parts of the contract. 

Take your time.

Borrowers are only given a limited chance to review their loan terms and conditions before you sign everything and the contract starts. There is no need to rush. If you find yourself being forced to sign anything, then it’s a red flag that you might need to reconsider getting a credit line from this lending company. 

Here’s a question we get asked frequently: if there’s one part of the terms and conditions that you should pay more attention to, what would it be? For us, that would be the arbitration. It’s the section where you might need to agree to waive your rights to sue in court in the future.

Please don’t take this as an excuse to skip the other parts of the document. Remember, it contains all the details of a loan that you’ll probably be paying off for months, if not years. It’s best to know everything inside and out.

Conclusion

Applying for a loan doesn’t need to be complicated. In fact, there are a lot of steps that you can do to avoid the most common mistakes that we have featured above. We only hope that our article has equipped you with more confidence to apply for the loan that best fits your financial needs. Good luck!

You might also be interested in: Should I Refinance My Mortgage? [A Guide To Home Financing]

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