Most adults will have to take out a loan to go to college, buy a house or purchase a car. Most times these loans go off without a hitch, but in some cases, things go wrong. Here are the three biggest mistakes borrowers make when it comes to taking out a loan.
Overlooking the Fine Print
If you don’t read the fine print, you have no idea what you’re agreeing to. Balloon payments or rising interest rates can lead to huge problems down the line, so it’s absolutely imperative that you make sure you understand the terms of the loan. Don’t rely on the salesperson or loan officer to explain the details to you. It’s not their job to hold your hand during the lending process, so you owe it to yourself to stay informed. If a question does come up, be sure to ask the loan officer for a comprehensive answer.
Not Considering the Long-Term
If you’re desperate for money, you may not be in a position to think rationally when it comes to obtaining a loan. Your loan will be a big part of your life for some time, so if you overburden yourself, you could suffer serious financial consequences. If you’re expecting a move in the future or upcoming lifestyle changes, taking a loan out may not be the smart thing to do. You need to think about the future before signing your name on the dotted line.
Yielding to Emotional Purchases
You may really want to drive a fast car or get plastic surgery, but obtaining a loan for an unnecessary purchase can be a big mistake. It’s cheaper and financially responsible to save for luxury purchases instead of trying to secure a loan for items you may not need. Housing, basic transportation and other needs are more acceptable reasons to seek a personal loan.
You should never enter into any financial transaction without thinking ahead and considering the consequences. Taking out a loan is serious business. However, if you avoid these three major mishaps and make every effort to borrow responsibly, taking out a loan can be a great way to meet your more expensive needs.