How to avoid common loan mistakes

What are some of your biggest financial mistakes to date? Big or small, most of us have made a few mistakes in life. While some are financially costly, some have offered great lessons, wouldn’t you agree? If you can learn from these mistakes, you’ll be in a position to make better decisions going forward and avoid repeating the same mistakes again. 

In this blog, we will take you through some of the most common mistakes when it comes to taking out loans.

1. Making a decisions too quick
   With the exception of a home loan or vehicle loan, you might need to take out a loan in order to cover an emergency cost that you simply cannot afford with your monthly income. Because this is an emergency, there’s often very little attention paid to the details before agreeing to the loan. Taking the first loan that comes your way is a mistake that should be avoided. Instead, take a bit of time to do your research. Shop around for the best terms, the best repayment options, fees and even interest rates. These will vary for each bank and each credit type, so take your time and make accurate comparisons before signing or agreeing to anything.

2. Not checking your credit score
   Your credit score plays an important role when it comes to your loan applications. Not checking where you stand is a mistake that can see you losing out on a good loan with good repayment conditions and favourable interest rates. Develop the habit of monitoring your credit health so that you can also negotiate for better rates once you know where you stand. If you plan on taking out a home or vehicle loan in the future, checking your credit rating can give you a better idea on where to improve so that you can be approved for the loan you’ll apply for when you need it most.

3. Skipping or missing credit repayments
   When life is complicated or you simply have a lot going on, it’s easy to forget to do some things. The biggest mistake would be to forget to pay your credit bills. Failure to pay your loans or credit card accounts will leave a negative listing on your credit report. When you need a loan in future, this might affect your chances of being approved.

4. Not assessing your budget
   A loan might offer great help to get you out of a tough financial situation, but if you can’t afford to pay the monthly repayments, it will leave you in an even deeper financial ditch. Your biggest mistake is not evaluating your affordability and budget. This will require you to be honest in calculating whether or not you can comfortably afford to repay the loan, while having enough money to live each month.

5. Not reading the fine print
   Many people have at some point found themselves in hot water, simply because they overlooked some important information contained in their credit contract. This is a big mistake because it could impact your financial security in the long term. Before signing on the dotted line, make sure you understand what you’re getting yourself into – know the terms and conditions, insurance available, repayments, interest rates and fees you’re signing up for.