Thinking of applying for a personal loan? A personal loan can be a handy financial tool, and a great way to access the funds you need. But before applying for your loan, here are some common mistakes to avoid.
Not considering your budget
The first key thing to do, when applying for a loan, is to consider your budget. While the lender has responsibilities, and won’t approve a loan for you that they don’t believe you can afford, it’s important to ensure that you are 100% comfortable that you can afford the repayments, without other bills and commitments slipping behind.
Keep in mind that not being able to meet your repayments can not only be stressful but could also affect your financial life overall. Late payments can, in fact, impact your credit score and any future borrowing.
Not knowing your credit score
Your credit score is an important part of your loan application. Not only does it determine whether your loan will be approved or declined, it will also determine how much you can borrow, and often what rate you will be offered. Your credit score is affected not just by defaults or collections, but also whether you pay your bills on time.
While you might not think that paying your phone bill a few days late will make much difference, the reality is that with positive credit reporting now, any time you pay a bill late it will impact your credit score. It’s free to check your credit score, so find out what yours is; while you may still get a loan approved if your credit score is not great, you could work on improving it to get a better loan offer.
While you may need the money quickly, not taking a bit of time to understand your options could cost you more money than you want. For example, some lenders will allow you to make extra payments to your loan with no penalty – which is ideal if you would like to pay it off early.
Take some time to think about what the important features in a loan are for you, so you can make sure your loan is structured for your needs. And be careful not to apply for finance at different credit providers in a short space, as it will impact your credit score. Talk to us instead; we can talk to different providers on your behalf, and help you find the right loan without affecting your credit rating.
Settling for the highest rate
Perhaps you think that, because you are only applying for a small amount, it doesn’t matter what the rate is. Or perhaps you think that, because you have no security or credit repayment history, you will get a high interest rate anyway – so there’s no point in negotiating a better rate.
The reality is that lenders offer a variety of different interest rates – and what is a low-interest rate for one lender, might be at the high end of the range offered by another lender. At Motor Vehicle Finance, we work with a range of lenders, and we know what can make a difference to your rate. Talk to us if you would like to know what you can do to qualify for a lower rate.
Being late with repayments
Set up a direct debit, or put a regular reminder in your calendar. Paying your loans on time not only saves you from late fees and penalties, but it also helps you improve your credit rating. Once you get behind on loan repayments, it can be very hard to catch up. Make sure you don’t miss your due dates, to keep your loan payments on track.
There are lots of options out there, so a good first step is to get expert guidance. Talk to the team at Motor Vehicle Finance about your personal loan needs today – we’re not just about car finance! Contact us on 0800 666 021: we’re here to help.