In the process of applying for a loan? Wait. Before you submit your application, you should consider whether that loan is really the right option for you. Below are a few clear signs that you shouldn’t be applying for that loan.
You haven’t shopped around
You should never take out a loan without comparing what options there are on the market first. The loan you’re applying for may not have the best interest rates or the best terms. Some sites such as MortgageQuote.com allow you to apply for a free quote. These quotes are worth taking advantage of. Make sure to read into the small print to check for hidden fees like application fees and early repayment fees, so that you know exactly what you’re spending.
Your credit score is low
Applying for a loan with a low credit score isn’t a good idea. There’s a high chance you may get rejected – and this could reduce your credit score further. Alternatively, if it’s a lender that specializes in bad credit cases, you could be charged huge amounts of interest as a trade-off. It’s worth taking the time to improve a bad credit score before taking out any more loans. You can read a guide on improving your credit score here at USAToday.com.
You’re already struggling to pay other debts
If you’ve already struggling to pay off other debts, consider whether it’s really a good idea to add another debt to the mix. It could be an added cost to fit into your budget each month – a cost which could cause you to start missing other payments. This could mean even more debt. If you have other debts that you’re struggling to pay off, consider only taking out another loan if it’s a means of refinancing or consolidating these debts – paying off a high interest loan with a low interest loan or paying off lots of loans with a single loan could be a sensible idea.
You haven’t considered alternatives to borrowing
A loan may not be the only way to get the cash you need. You could consider other forms of borrowing such as credit cards, borrowing from family or taking a cash advance from your employer. Alternatively, you could consider selling possessions to earn some cash. There could even be charities that can offer funding for certain causes, or you may be able to seek out investors through options like crowdfunding. Consider alternatives to borrowing before choosing a loan.
You’re borrowing money for something you don’t need/won’t benefit from long-term
There’s a big difference between things we want and things we need. Taking out a loan to fund an emergency medical bill or an emergency home repair could be a noble cause. Taking out a loan to spend on clothes or to go gambling isn’t a noble cause. Make sure that it’s something that you actually need to borrow money for – such as an emergency or a large investment. A few examples of emergencies could include medical treatment, home repairs and car repairs. A few examples of large investments could include property, going to college or starting a business.
Photo by Karolina Grabowska