When it comes to money, nothing can teach us as much as our own mistakes-which makes them as much a blessing as they are a curse.
From taking on excessive debt to mismanaging repayments, there are some common errors that you need to steer clear of. For British consumers, these are the 8 lending mistakes you need to QUIT making, today!
#1) Taking out short-term debt on impulse
While a quick payday loan may seem like a fairly cheap and attractive deal, many don’t consider the long-term affects that short-term, impulsive debts can have on our finances overall. Once you become reliant on these loans you may end up stuck in a spiral of debt that will be very difficult to get out of.
This is because while you may be able to afford to repay the loan, plus the interest and any fees once you receive your next paycheck, before the month comes to an end you may find yourself, once again turning to credit to make it through. If you can avoid short-term loans completely, you will have QUIT at least one of the many lending mistakes we make.
#2) Multiple loan applications
Many of us are guilty of making more than one loan application within a short time period, especially those of us who have had the misfortune of having to look for a loan with bad credit.
While you may think you’re simply increasing your chances of being approved for a loan, you are doing the exact opposite. All of these lenders will be running a credit check on you and, this will lower your credit score.
The only time that making multiple loan application simultaneously is acceptable is when you are looking for a home loan or perhaps a vehicle loan. To avoid this lending mistake always use a loan comparison site to compare lenders and offers and make one application to your preferred lender.
#3) Missing repayments on loans & credit cards
Skipping a repayment on your credit card or personal loan once in a while may seem like a trivial mishap, it certainly isn’t. Not only will your credit provider send this information on to the various credit bureaus but, they'll flag your account and possibly charge you non-payment or late payment penalties. As a result, you'll experience a drop in your credit rating while also having to pay more for your existing credit.
To avoid missing repayment on credit cards and loans, always automate repayments to ensure that they are taken out of your account soon after you are paid. If for whatever reason you do not want to automate the repayment try to set up a reminder that coincides with other repayments or admin tasks that you need to complete on a regular basis.
#4) Avoiding creditors when you can’t make your repayments
Whether as a result of sheer embarrassment or out tendency as humans to avoid problems, many people tend to avoid creditors once they’ve missed repayments. This will only serve to make the situation worse since your creditors will then be unable to assist you in anyway and will only be able to report your non-payment and charge non-payment penalties.
To avoid this mistake, if you are short on cash or know you will not be able to make your repayment you must reach out to your creditors and inform them of your situation. You creditors will be able to offer you a wide range of alternative repayment options from deferring your repayment to consolidating and refinancing, in a way that will work for you and ensure they still get their money.
#5) Not comparing loan options before applying
When we need credit many of us approach our bank and request a loan directly. This is a huge mistake and reduces your ability to secure a cheaper and better option or offer from another provider. You should never make a loan application prior to comparing loans on a loan comparison site.
To compare personal loans you should always look at the comparison rate of a loan option or use the APR and not the interest rate. In addition you should ensure you review the loan terms and fees as well so that you understand what you are getting completely.
There are a wide range of loan comparison websites that you can use to not only find the best rates but also find loans that offer flexibility and meet your individual needs.
#6) Not reading the terms & conditions
Many people are excited when they get a loan offer and make the mistake of signing the contract without reading the terms and conditions. The T's and C's of a loan will include a wide range of information such as penalty fees in the case of early repayment, penalty fees for non-payment, your loan term, required monthly repayment and, whether or not loan insurance is included.
To avoid this mistake always ensure that you read your terms and conditions before agreeing to the loan. If you already have personal loans, dig up your agreements and review these right away. You may be surprised to find out some information that may save you money. If you want to repay your debt early, this is where you will find out if your lender will charge you for this early repayment.
#7) Consolidating debt when it’s not suitable for their situation
Debt consolidation is a very popular option for UK households who feel that they are over indebted and are struggling to manage their repayments. That being said, there are many circumstances in which consolidating will actually put one deeper into debt and make your monthly repayments more expensive.
This includes where someone consolidates hefty debt and fails to secure a low interest rate or chooses to opt for an unsecured loan and end up having to pay more towards their new loan than they were paying on their smaller individual debts.
Debt consolidation is not a solution for all and all the pros and cons must be weighed up before you agree to it. If you’re unsure of whether it’s a good option for your circumstances you should always get expert financial advice from an impartial adviser. As a general rule it is best to consolidate short-term unsecured debts including credit cards and store accounts.
#8) Taking on more credit than you can afford
This is a big one. Many of us can qualify and are approved for credit that they cannot really afford. This is simply because while lenders perform credit checks they can only rely on your honesty when it comes to information relating to your budget.
Many people take out the maximum credit that they’re offered and stretch their budgets too far. This usually happens gradually which is why it’s hard to spot and put an end to in time.
To avoid this problem always consider your budget before applying for a loan and consider how much you can afford to pay comfortably. Always ensure that you manage credit card debt as well, maxing out multiple cards will result in over extending yourself.
There are many other lending mistakes that people make including, applying and taking out loans that come with sub-prime rates or choosing longer loan terms and paying more for their credit overall. Ensure you avoid these top lending mistakes and keep your finances healthy.