People tend to fill out a personal loan application without doing the proper research before. And this is like starting to build your house from the roof. When shopping around for a personal loan, we tend to focus on immediate solutions that aren’t necessarily ideal for their case. Before you submit your personal loan application, pay close attention to these three mistakes — and avoid them at all costs. Take the time to do things right.
Mistake 1: Only Comparing Costs
While cost is a major factor in deciding which lender to go through, it shouldn’t be the only factor. Customer service and reputability are equally important. You want to have a seamless experience, so make sure to research the lending institution before you submit your application. Let other consumers’ reviews shape your decision. Many lenders also charge an origination fee to process loan applications, so ensuring the relationship is a good fit before you submit your application can help save you money.
The time it takes to research an array of lending institutions will save you money and stress in the long term. Compare current rates and lenders for the best solution for you:
Accordingly, you should know exactly what you are getting into from the beginning. Determine whether you risk incurring any hidden fees with the lender you hope to work with, such as a prepayment penalty for paying off your personal loan before the term is up. These fees can be costly in themselves, so look out for them.
Mistake 2: Overlooking Your Credit Score
Before you submit your personal loan application, consider the implications of your credit score. Without researching the right lender — that is, the right lender for your needs and financial situation — your credit score could end up costing you thousands of dollars in finance charges.
Your credit score is one of the main factors lenders look at when they review your personal loan application. The higher your credit score, the lower your interest rate will be. In turn, if you have poor credit, some lenders will be a better financial fit than others. Many lending institutions have minimum credit requirements, so be sure to conduct thorough research before you proceed with your application.
At San Francisco-based Lending Club, a powerhouse in the online personal loan sphere, every loan is given a grade of A1 through E5 based on the borrower’s personal loan application and credit report. Interest rates vary from 5.32% to 26.30%. For a $15,000 personal loan, this means a borrower with a grade of A1 will pay $798 in interest, while an E5-rated borrower will shell out a total of $3,945 in interest payments. The difference is quite substantial.
Mistake 3: Fudging Your Financial Information
While working on your application, chances are you want to portray yourself in the best possible light. That said, you might want to think twice before you stretch the truth. Lying on a personal loan application is illegal. At a minimum, it will result in your loan application being denied, but fibbing on your application is considered fraud and can lead to jail time. Refrain from overstating your income in hopes of getting a better deal.
In 2015, a West Virginia man was sentenced to prison and a year of supervised release for lying on his personal loan application. He claimed his monthly income was $29,000, when in fact he earned a mere fraction of that amount — $2,833.33 per month, to be exact. While this is an extreme example, it highlights that lying on your application with the aim of getting more money is not worth the risk it presents.
Before you submit your personal loan application, make sure you are being completely honest — and don’t be afraid to shop around for a lender who can accommodate your needs.