There is no avoiding loans for most Americans in life, even the rich take out loans at times. Weather it be a mortgage, a car loan, a student loan, a small business loan or a short term loan at some point you will likely need to take out a loan during the course of your life time. Yet for millions of Americans taking out a loan does not always go according to plan landing many Americans deep in debt and plunging their credit scores down low. Often times this is due to mistakes made on the borrowers part and not due to the conscious acts of the borrowers. Here are some common mistakes you can avoid when taking out a loan.
Not thinking about the long term:
All loans have a duration and most loans are for a period of at least 3 to 5 years if not more, with the only exception being short term loans such as payday loans or small micro installment loans. This means the loan is going to be a part of your finances for quite some time so you need to figure out before you take out this loan if you can even afford it. You need to look over the terms, interest and fine print of the loan to fully understand what you are committing yourself to. You need to think before you take out any loan how it will affect your day to day, month to month living expenses after you factor in the monthly loan payment, else you risk solving one problem taking out the loan but creating a new problem. Many people end up taking out loans they cannot afford which clamps down on their available cash flow leading to financial problems and deeper debt.
Taking out a loan during times of crisis or passion:
You should not let your emotions rule your desire to take out a loan. Even during an emergency you should take a step back and examine your options. This is similar to not thinking about the long term above, the effects can be the same for the one borrowing money. You should avoid taking out loans for frivolous things such as a night out on the town or to fund your next plastic surgery, and yes people have taken out loans for such things. You should reserve loans for the things you really need such as a car, an education or a mortgage.
You should come prepared to the loan officer with all needed paperwork handy. Loans are not simple little pieces of paper and they do require a certain amount of work ahead of time on your part. Income verification, lists of assets etc etc. Sometimes married women have their name changed with only social security and not on their drivers license for example which can cause you to be turned down for a loan. You should never leave anything blank or missing from your loan application as the number one issue lenders come across when it comes to loans is incomplete applications. The more information your lender has on your application the higher the chance is that your loan will be approved with no delays.
Loans are a serious commitment on your part. Be prepared, know full well the terms of your loan and most importantly make sure you are taking out a loan for the right reasons and make sure you can afford the payments before you take out that loan.