Laura Beck
4 min read
Getting a personal loan doesn’t have to be a nightmare, but way too many people sabotage their own chances before they even get started. To save you the time (and the headache), we’ve put together the most common mistakes people make when going through the process. Trust us, this list can save you thousands of dollars and a world of difficulty.
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Here’s the eight common mistakes to avoid when applying for a personal loan.
This one’s a biggie. Walking into a loan application blind is like showing up to a job interview without knowing what company you’re applying to. Your credit score determines everything, up to, but not limited to your interest rate, loan terms and whether you’ll even get approved at all.
Check your credit score before you start shopping around. If it’s lower than you expected, you might want to spend a few months improving it before applying. Even bumping your score up by 50-100 points can mean the difference between a 12% interest rate and an 18% interest rate. On a $10,000 loan, that’s serious money over the life of the loan.
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Here’s where people get themselves into trouble thinking they’re being smart. You might think applying everywhere increases your chances, but multiple hard credit inquiries in a short time can actually hurt your credit score and make lenders nervous.
The exception? If you’re rate shopping and submit all applications within a 14-45 day window, credit scoring models typically count them as a single inquiry. But spreading applications out over months? That’s going to ding your credit repeatedly.
On the flip side, some people make the mistake of taking the first offer they get. Personal loan rates can vary wildly between lenders; we’re talking differences of several percentage points. Banks, credit unions and online lenders all have different qualification criteria and rate structures.
Credit unions often offer lower rates to members, while online lenders might be more flexible with qualification requirements. Don’t leave money on the table by not doing your homework.
Just because a lender approves you for $25,000 doesn’t mean you should take it all. Every dollar you borrow costs you money in interest, and personal loans typically have higher rates than secured loans like mortgages or auto loans.
