Do you need money quickly?
Quick personal loans are convenient when an unexpected expense comes up. But before you leap into fast financing, it’s good to know the hidden pitfalls that get many borrowers into trouble.
Here’s the truth…
Quick personal loans are pervasive across the country. Right now, there are 24.8 million Americans who have personal loans with a collective $257 billion in outstanding balances. That’s a lot of money.
And if there’s one thing you’d expect with that kind of financing power, it’s a customer base that behaves very cautiously. Wouldn’t you?
But, alas. This is not the case.
Instead, most borrowers are making the same stupid mistakes, over and over again. Mistakes that end up costing them thousands of extra dollars in unnecessary fees and interest. And the worst part?
It’s completely avoidable.
In this article, we are covering all these common financing mistakes and the quick solutions you can take. Let’s get started.
What you will learn:
- Avoiding the Real Costs of Speedy Financing
- The Number One Biggest Mistake That Borrowers Make
- The Worst of Fees That Wreck Your Budget
- Smart Shopping Tips for Personal Loans
Avoiding the Real Costs of Speedy Financing
Speedy personal loans are all around you these days.
Ads flashing across your screen, and papers every day at the gas station boasting same-day funding, instant approval, no credit check, and more. It sounds great when you need the money now, doesn’t it?
But here’s what you miss most…
Speed has a cost.
The urgency to get fast financing right now makes you miss things that matter most. Working with responsible loan lending services even with the time crunch requires you to take a moment and figure out what you are signing up for.
And according to our research, the average personal loan debt per borrower is at around $11,676 these days. Not too bad, you might say.
And if you are not careful with the terms you are about to sign, that number could skyrocket through various fees and interest.
The Number One Biggest Mistake That Borrowers Make
Would you like to know the biggest mistake that costs most borrowers a lot of money?
It is when they never check their credit score before applying for the loan.
Approaching the lenders without knowing your credit score is the worst approach to acquiring a loan. Your credit score determines the interest rate of your loan, terms of repayment, and even approval.
The difference of 50-100 points could be the line between a 12% interest rate and an 18% rate. A 10k loan with the 6% different interest rate could imply paying more serious cash over the lifetime of your loan.
The credit scores are not the only thing that borrowers need to take extra time to analyze…
Only Borrow What You Really Need
This is one that every lender is playing at.
Lender offers you $15,000 while you only need $10,000. Your first reaction is, of course, “Extra cushion never hurts, right?”
Wrong! The extra $5,000 comes with extra stress as the lender is charging you more interest, more monthly payments, and more chances of financial stress.
Only borrow what you need. Set a realistic budget before applying for a loan. Make sure to calculate your income, the existing expenses, and the number of other debts that you are currently paying. Then don’t exceed that number when you are offered more.
The Worst of Fees That Wreck Your Budget
And this is something that almost every first-time borrower is bound to get mad at the first time…
Fees.
A personal loan offer on the first sight looks fantastic. A reasonable interest rate with manageable monthly payment, and the customer is already ready to sign. No worries! Hidden in the fine print and the small letters are some fees that will tear up your budget like no tomorrow:
Origination Fees – Some lenders are asking up to 10% of your entire loan amount just to create the loan. If the amount is $5,000, then you should expect the $500 deduction before you even receive the money.
Prepayment Penalties – Some lenders are even charging you if you pay the loan early. They are losing their interests, so they punish you for being a responsible borrower.
Late Payment Fees – These are standard, but the difference in the amount of these fees with different lenders is massive. Some of them are charging an extra percentage of the loan which immediately gets onto you.
Whatever loan agreement you are taking, always read it carefully. Ask your loan officer if you have any questions. They are there to serve you, so don’t be afraid to ask. If they don’t tell you clearly about the terms and conditions, just walk away.
Smart Shopping Tips for Personal Loans
Don’t accept the first loan offer you come across.
This is one no-no that you should never do when it comes to speedy personal loans. Shopping around is necessary.
Each lender has different terms of lending for the same borrower. Banks typically offer higher interest rates and strict requirements. Credit Unions could be offering a better loan with lower rates, but you have to be a member first. Online lenders, on the other hand, have the most flexible terms.
Shop at least 3-5 different lenders before committing to a loan. Compare the interest rates, fees, repayment terms, and online customer reviews.
Many of them offer pre-qualification which do not cost you any damage on your credit score. Take advantage of this service and get multiple pre-qualified offers for your loan. Then sit down and review the offers with one another.
Focus on Total Repayment, Not Monthly Payments
This is where most borrowers fall into the trap of which they can’t escape.
Many borrowers are only looking at the monthly payment amount. “The $200 a month” is something that most borrowers can easily afford. But what they do not see is the total repayment amount they are going to have to pay at the end of the loan.
The longer the repayment term, the lower the monthly payments are, but the interest is increasing significantly. Always choose the shortest period that you can comfortably afford. It will save you thousands of dollars in the end.
How to Spot Red Flags Before You Sign
There are some signs that you should quickly spot and run the other way.
Guaranteed Approval Regardless of Credit – No reputable lender will ever give you a loan guarantee without checking your credit worthiness to repay that loan.
Pressure to Sign Quickly – All responsible lenders will give you ample time to review all the documents before signing.
Requests for Upfront Payments – No legitimate lender will ever ask for payment before the loan is funded. It is a 100% scam.
Trust your instincts. If it feels off to you, chances are, it is.
The Debt Consolidation Trap
A quick word about debt consolidation and personal loans…
It is looking like a very smart move, isn’t it? You take out one loan to pay off all your credit cards. You have lower interest rates and one single payment. What is not to like?
The thing is… according to the 2023 TransUnion survey, after 18 months of consolidation, the credit card balances increased to the level of before the consolidation. Borrowers not only had their original debt but also a new payment to their plate.
The borrowing cycle continues.
The bottom line is that debt consolidation will work only when you adjust the behavior that made you fall into debt in the first place. Without that, you are only adding another source of financial pressure in your life.
Key Takeaways
Quick personal loans are not as easy and convenient as you thought. Avoiding common pitfalls of speedy financing will help you make a much better financial decision when you need a loan. But that requires you to check your credit score before applying, do your homework before signing a contract, read all the fine prints and only borrow what you need.
The difference between a wise loan decision and a financial disaster might be spending an extra moment or two to do your homework. Even if you need the money in a rush, fast-tracking the process will make you dig deeper into your pockets for the longer term.
