Common Borrowing Mistakes That Could Cost You Big

There comes a time for many people where they need a helping hand to cover the cost of a purchase. From applying for a mortgage to pay for a house to accepting a short-term loan to handle an unexpected bill, there are a lot of lending products out there to take advantage of. While they are designed to help you out of a bind when you don’t have the means yourself, often consumers abuse them and cause more trouble for themselves than it’s worth. If you’re thinking of borrowing funds soon, you’ll want to avoid these mistakes or face costly consequences.

Not Reviewing the Options

When you’re in need of cash, it can be easy to decide in haste. You select the first loan product that pops up without weighing the pros and cons. Often, there are a lot of options out there for you, no matter what your financial background. For instance, opting for a payday loan lender with short payment terms and high-interest rates instead of looking for alternative payday loan options for individuals with bad credit could cost you money down the line. Installment loans, which is a better option, gives you more time to repay the loan so you don’t run the risk of skipping payments and falling behind.

Borrowing More Than You Can Afford

It can be tempting to get preapproval emails worth thousands of dollars, however, if you can’t afford to pay those amounts back, it is not a good idea to accept the loan. Accepting a loan that is larger than you can afford essentially leads to a web of debt. You begin to fall behind on payments which tack on late fees and interest. The further behind you fall, the more collection actions are taken that ruins your credit. Instead, only borrow what you can afford to pay back within the loan terms.

Skipping Payments

Things occur in life that can derail you from your plans to pay down a debt. However, the biggest mistake you can make is to skip a payment and not communicate with the lender ahead of time. Skipped payments result in late fees and associated charges. Instead, contact the lender and explain your circumstances. They are more than willing to work out a new arrangement with you that will get your debt paid in full. This can also prevent them from tacking on additional fees.

Not Reading the Agreement

Whether you apply for a loan online or in person, it is imperative to read the agreement in its entirety. This document explains in detail how much you’re borrowing, how much interest will accrue when it must be repaid, and what the penalties are if it is not repaid. Failing to read this could result in you signing a contract that you ultimately can’t afford to keep.

Loans are convenient products that are to be used to help us out of difficult financial situations and/or to aid us in purchasing items that are beyond our economical reach (i.e. house or a car). There’s a lot of advice about loans out there, but being a responsible borrower should be at the top of the list. Remember to review your options, borrow what you can afford, make timely payments, and read your agreement in full to avoid costly consequences like ruined credit and higher costs.