1) Getting Too Big Of A Loan
It can be tempting to take out just as big of a loan as you can but you must be careful. Your lender will probably approve you for more money than you need and often more than you can afford. Why would they do that? Because your lender will only have a small snapshot of your financial profile. Your lender does not want to give you more than you can afford because they want you to pay the loan back. It happens though because they can not account for all of your spending. The things you use cash for and the things that are not reported on your credit report.
So, before you commit to that loan, write up a budget and insert your installment loan payment. Make sure that it leaves you with enough money to cover your other bills and to live your life like you are accustomed. If your loan would stress your finances, you should really reconsider it.
2) Not Pulling Your Credit
You need to pull your credit any time that you make a major financial transaction to see what is on there. Sure, if this is an emergency loan, there may not be time. For other purchases, try to pull your credit at least a few months in advance. This will give you time to see what is on there and dispute discrepancies. If you find incorrect information, it will take about two months to get it removed.
In addition to removing negative information, you need to see what your score is. There is almost always room for improvement. If your score is not where you need it to be to get a good loan rate, you should do several things. First, try to get your balances below 30% on credit cards. If you can not afford to do this, try calling your credit card company to ask for a credit line increase. Next, look at your payment history. If you have a late pay on your report, you may need to postpone your installment loan application. As little as six months of paying your bills on time can start to improve your credit score. Every point counts on a credit score and if you can wait, making a few improvements can easily get you 20 to 40 point which can drastically lower your interest rate.
3) Not Shopping Around
Lenders can vary quite a bit in what they offer. They set their own requirements and decide the rates that they ill charge and the level of risk that they are willing to take on. Because of this, you need to shop your installment loan around. Don’t worry, credit wise, it is expected that you will shop a loan around a bit so a bunch of different inquiries at once will not affect you.
Get a few different loan quotes to get the best rate. Do so and you will quickly see that lenders are very different. Look at not only the interest rate, but also the terms of the loan. Search the lenders name and see if there are any reviews on them. You want a lender who is not going to be difficult to work with. It might be worth paying a dollar or two extra an installment to use a good lender instead of one with bad reviews.
4) Not Making Timely Payments
Missing payments is a big deal. Even one slow pay over 30 days an drastically affect your credit score. Make sure that you now when your loan is due. It is your responsibility to make your payment on time, even if your lender does not send you a bill on time. Your loan contract should of had your first payment due date. For peace of mind, set up automatic payments if your lender offers it.
5) Getting A Loan For A Luxury
You should never take out a loan for something that you do not need. There are certain things that you need to have loans for like homes and automobiles. After all, who has $200,000 just lying around. Luxuries however should be saved for. These include things like vacations, boats, etc. You do not need these items to live comfortably so why take out expensive loans to get them?
6) Not Reading The Fine Print
You need to know exactly what you are getting into. Read all of your loan details, don’t just look at the final payment. Know the interest rate, late fees and early repayment fees. If this is a secured loan, know what kind of insurance coverage is required. Once you sign the loan contract, you are committed, so take a little time to understand fully what you are getting yourself into.
7) Collecting Too Much Debt
Taking out too many loans can be a big problem that can leave you cash strapped and on the way to financial devastation. If this installment loan is to be used to pay off credit card debt, be careful not to rack up more credit card debt. If you are not disciplined, cut up your credit cards or at the very least, do not carry them with you. If your credit cards have annual fees, close them. If they do not, just let them sit. Closing them can damage your credit if your available credit declines.
If this is a luxury purchase, do not take out an additional installment loan while you are still making payments on this one. Wait until this one is paid off.
8) Not Having A Budget
If you do not have a budget you do not know where your money is going.If you do not know where you are already spending your money, you do not truly know whether you can afford to make that loan payment. Even a small payment of 250 dollars could end up wrecking you.
Before you commit to a loan, make up a simple budget. Nothing fancy, just list out all of your expenses. Include set amounts for things like entertainment and food. When you are done, insert your potential installment loan payment and see how things look. If things are tight, yo umight think twice about accepting a loan.