Did you know 64% of Americans live paycheck to paycheck? Between inflation and rising fuel prices, it’s difficult to make ends meet. If you find yourself in this category, you probably don’ have the cash you need for big purchases.
If you’re like most people, you’ll need to take out a loan for things like cars, furniture, elective surgeries, and more. The question is, how do you avoid putting yourself deep into debt? How do you make the right loan decisions?
We’re here to help keep you out of trouble. Continue reading for some of the most common types of loan mistakes and how to avoid them.
Not Knowing Your Monthly Budget
One of the worst types of loan mistakes is not consulting your monthly budget before borrowing money. Before taking out a loan, take a look at your finances to make sure you can comfortably afford the loan payments on top of all your other monthly expenses.
If you can just barely make the payments, it might not be a good idea to move forward with the loan. You don’t want to put yourself under constant financial strain.
If an emergency comes up, you’ll find yourself defaulting on your loan payments or other monthly obligations. This will result in extra fees, credit score penalties, and more.
Accepting Astronomical Interest Rates
A smart investor knows the importance of shopping around for the best interest rates. Before taking out a loan, reach out to multiple banking institutions to seek the best terms and conditions for the loan you want to take out.
Some financial institutions are more affordable than others. You might also be able to take advantage of special promotions or first-time borrower discounts.
Avoid high-interest rates at all costs based on the type of loan you’re applying for. A small one or two-percent increase will make a big difference in costs over time.
Not Knowing Your Loan Options
Before borrowing money, make sure you’re aware of the different types of loans you can take out for your needs. For example, if you’re in desperate need of quick cash and have poor credit, payday loans and title loans might be your only options.
However, these come with steep fees and high-interest rates. Conversely, if you’re looking for help paying off high-interest debts, consider a payday loan consolidation.
Not Reading the Contract Carefully
Finally, don’t make one of the worst types of loan mistakes – not knowing what you’re signing. Read the contract carefully to make sure you’re getting the best personal loans for your needs and your budget.
Answer the following questions:
- What is the interest rate of this loan?
- How long is the loan term?
- Are there any fees or penalties for late payments?
- Are there any penalties for paying the loan off early?
These questions will help you find the best loans available to you.
Are You Making the Types of Loan Mistakes Listed Above?
Taking out a loan is a big commitment. Make sure you’re not making any of the types of loan mistakes listed in this article to avoid high-interest rates and unnecessary debt.
And if you’re looking for more smart money tips, financial advice, or lifestyle guidance, check out some of our articles. Our blog is full of content created to help people like you make good decisions.