Applying for a personal loan can be a great option for someone who is in need of fast cash for an emergency expense or to even pay for monthly recurring bills. While the loan process itself is fairly simple, there are many common mistakes that borrowers typically make.

Below are the top 5 most common mistakes, and the best ways to avoid them.

1. Borrowing too much

A personal loan can be a good option to care for an emergency expense and unexpected financial situation. Many times borrowers are approved for more than what they truly need. This can turn into an overwhelming amount to pay back once interest and fees start to add up.

Make sure when borrowing money that you are only taking what you are comfortable paying back. This will ensure that you don’t stretch your finances too thin and wont put yourself in any further financial risk.

A good rule of thumb is to never exceed 110% of your expense needs, so for example of you need $1,000 for a car repair, then the most you should borrow is $1,100.


2. Ignoring costs and fees

While personal loans can definitely be a life saver in urgent situation, a borrower must remember that there will always be fees and additional costs associated with any cash loan they receive. Many times we can forget that we will have to pay back more money than we initially borrowed once interest accrues.

Be sure to fully read how much you will be paying back in interest and any associated late fees or other costs that may be associated with the loan. If the fees are more than you are comfortable paying, then you may want to find an alternative way to get the cash that you need, which would be more cost effective.

Some lenders may charge in excess of 25% for their loans, which may not make financial sense for your personal situation. Always do the math before you accept any loan.


3. Not paying attention to your credit score

Your credit score will be one of the first factors that lenders will review when deciding to approve your loan application. Although there are lenders that will work with borrowers with lower credit scores if they show other factors of trustworthiness, such as having a stable job and stable place to live, credit will always be an important topic.

Always make sure you are aware of any potentially negative items on your credit report. Many times unknown mistakes will negatively impact your score. If you do discover negative items on your report, many times you can open disputes to have these items removed, which will greatly increase your score.

There are many free services that allow you to monitor your credit report. It may be the best option to hire a professional service to help file your disputes if you are unfamiliar with doing so yourself.

4. Lying on your application

Lying is on a loan application is one of the biggest mistakes you can make. Giving inaccurate information, even small discrepancies can lead to fines or even jail time.

Getting approved for a personal loan is never worth the risk of making false claims on your application. If you are worried that you may not be approved, look for ways to improve your standing by having negative items removed from your credit report (as mentioned above) or possibly look for another way to get the cash you need. Getting fast cash is never worth going to jail!

5. Not understanding the fine print

When you accept a personal loan offer, you are entering a legal contract with your borrower. The terms of this contract must legally be listed in the fine print of the loan.

Always take the time to review these terms and ensure you are ok with these conditions before you accept the loan. You can always apply for a loan first, to see if you are approved then read and agree to the terms before the loan is complete. You are never obligated to take a personal loan just because you submitted your application.

Remember you have the legal right to review the terms first before you accept any cash loan from a lender. So after you submit your application, if you do not agree with any of the terms, you can simply walk away from the loan with no impact. Make sure you are well informed before you sign your name on the dotted line.

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