Whether you are applying for a loan as part of your financial planning for the year, perhaps an auto loan or a mortgage, or something has happened and you are in need of an emergency cash injection, it is so important that you take the time to consider the credit, and the provider carefully, before you sign the agreement. An amazing 60% of UK consumers admit they are not clear on the interest rate that they are being charged. This kind of oversight could affect an individual’s financial futures if they are unable to meet the repayment plan, dates or crucial information about their financial products.
These are some of the most common mistakes made by consumers taking out a loan. Avoid these for a happier borrowing experience and potentially better finances in the future:
You Don’t Do Your Homework On The Different Types Of Credit
Different types of credit are better suited to certain situations. Knowing which type of credit you should use, whether you need a quick, small lump sum from short term loans or revolving credit from credit cards, it is worth researching the best option for you.
This could help you secure the best rate and avoid over-paying or over-borrowing. Some of the loan types you could look into include:
- Peer to peer lending
- Guarantor loans
- Personal loans
- Payday loans or short term loans
- Debt consolidation loans
- Credit unions
- Secured loans
You Don’t Know Your Credit Score
An expected 49% of Britons have never checked their credit score. This number increases amongst younger people (18-24) to 72%, who have never looked into what creditors and banks look at when they assess them for a loan. However, reports also indicate that an increasing number of the same demographic (18-24) are stressed about money, owing approximately £3000, on top of student loans. Although the report does not specify, it is likely that this debt has been accumulated from taking out credit, most likely whilst being unaware of credit scores and the effects this could be having on future finances.
Choosing to ignore a credit score is harmful financial behavior. All applicants applying for a loan should take control of their finances and consider how lenders and credit bureaus consider them. If taking out a loan is part of your future plan, it is recommended that you look into your credit score as soon as possible and take measures to improve it if it is a little less than perfect.
Forgetting To Compare Your Loans Or Use Price Comparison Tools
Price comparison tools can be one of the consumer’s biggest tools when applying for credit or seeking any kind of financial service. Users should be aware that many price comparison sites accept sponsorships, which means that certain company’s products will appear at the top of the list, even if they are not the cheapest or best option for the consumer.
In turn, using a price comparison tool online could prevent multiple applications, because the information is presented all in one place. Applying for a loan can mark your credit report and is known as ‘credit inquiries. It is not considered the most crucial contribution to a credit report, but lenders might consider you to have a financial problem or desperate if you apply for multiple loans. Ultimately, this could make the loan you opt for, more expensive.
These are just some of the most common mistakes. It is vital to only use responsible lenders, that are compliant with FCA regulations. This will help to ensure that the company you enter a financial agreement is transparent, ethical and will run all necessary credit and affordability checks before they lend to you.