For many, obtaining and managing a loan can seem cumbersome, no matter how necessary. The application and approval process can take a significant amount of time; paying off your loan can seem far away in the future; and taking out a loan sometimes means you’re adding to already existing debt.
But wait! Before you become overwhelmed by all of these thoughts, we’re here to tell you that taking out a loan doesn’t have to be a daunting and negative experience. In fact, a loan can be one of the most helpful and intelligent financial decisions you ever make!
That being said, there are certain things you should do and things you should just plain avoid when it comes to loans — both during the application process and after. Here’s our list of what not to do:
- Go With the First Lender You Find — When looking for a loan, you’ll come across numerous deals from all sorts of sources – credit unions, companies that specialize in loans, banks and more. Do your research to find the most favorable terms and interest rates, and avoid going with the first lender you find.
- Fail to Take Your Budget into Consideration — When you’re negotiating the terms of your loan, keep your budget in mind. Determine the monthly payment amount you can afford to make and never sacrifice extra income or emergency funds to take out a loan; it’s called an emergency fund for a reason.
- Ignore Borrowing Costs — Upon reaching a loan agreement, make sure you understand all terms and conditions in your contract and do not ignore any borrowing costs that might be associated with your loan, including things like variable interest rates, insurance costs, or prepayment penalties.
- Take Your Time Paying Off the Loan — Every day of a loan agreement, you, the borrower, will accrue interest. The longer you take to pay off a loan, the more interest you’ll pay in the long run. No matter how much your loan is, pay it off as quickly as possible to avoid accumulating interest.
Now you know the ‘what not to dos’ when applying for and repaying a loan. If you’re interested in learning what you should do during a loan application process and beyond, stop by your local branch to chat with a loan specialist.