Applying for, and getting a loan from a lender is always a 50/50 process: you either get the loan, or you don’t. But you find that there are many instances where borrowers’ applications are rejected even when they are clearly within the minimum loan requirements. There are other instances where the borrowers get themselves in trouble with the loans due to some mistakes with the paperwork.
This article has compiled a list of mistakes that loan borrowers have been known to frequently make when applying for online loans.
The most common mistake that loan borrowers are known to make starts right from the outset of the application. Obviously, the lender will hand you some paperwork to read through and sign to acknowledge that you have agreed to the terms of the loan. If not, then you don’t sign and look for the finances elsewhere.
Banks and other credit bureaus will want to know what you need the loan for and how you intend to use the money. This is the time that you also need to have all your accounting records in order. The lenders would want to know whether you are in a position to repay the loan. The lenders may also want you to produce copies of your cash flow statements, profit and loss accounts, balance sheet, income tax returns, etc. This step is always a stumbling block for most borrowers.
- Calculating your financial position
It is vital that you understand your financial position before you apply for any loan. Doing this will help you to determine the actual or estimated amount of funds you need. It will also help you determine whether you will be in a position to pay the EMIs. After you take a loan, will you be able to pay it back plus the interests to it?
- Credit rating
You also need to check your credit rating before you apply for any loan. Banks and most of the credit bureaus and companies use credit ratings to determine whether or not to offer you a loan. They will also use your credit ratings to determine the interest rates to apply to your loan; that’s if you manage to get a loan. Knowing your credit rating can also help you have greater negotiating powers especially if you have a good credit rating. You can negotiate for lower interest rates on your loans.
Going through your credit ratings also gives you the opportunity to check for any discrepancies in your scores. And should you find any, then you have to report it immediately with the rating agency for it to be rectified.
- Fine print
Once the loan has been sanctioned, the lender will give you an agreement form with all the details of the loan. These forms should also contain the interest rates on the loans and the payment schedule for the loan. You need to go through these papers carefully before agreeing or signing anything. This is always the biggest mistake that most people always make. Sign the documents without actually reading them.
If need be, take your time and even consult with an expert on the agreements set by the lending institution. Legal documents are always filled legal jargons which may sometimes be confusing to the common person. And bank agreements have been known to be a minefield sometimes. They may even come back to bite you someday in the future. So, read through all and any document that the lender provides you. After all, better safe than sorry, right?
- Hidden fees
Most fees involving the loans are usually communicated upfront. But banks and other lenders have been known to also include hidden fees in their loans. Fees like documentation charges and other hidden fees may be lurking in the document that you are given. All the more reason to carefully read through any documents you are presented by the lenders. You can also ask the bank to assist you for clarification and details on these hidden fees.
- Shop around
New lenders are popping up with better interest rates on their loans every day. Which is why it’s best to shop around a little before taking a loan. Compare the different loan packages and go for the one that best suits your preferences.
Banks will always want collateral which they can use as security should you fail to pay back the loan if they give it to you. So, figure out what you are comfortable giving as collateral before seeking a loan. The value of the collateral should also be commensurate to the total amount of the loan that you are applying for.