Millions of Americans take out loans every single year, in fact loans are a fact of life for most adults. Just buying a car or a house means you will likely need to take out a loan at some point. If you ever use a credit card that is a form of a loan as well. American borrow a lot, in fact the national U.S household debt stands at around $11.7 trillion according to the Federal Reserve.
Yet despite already knowing we need loans and that loans are a fact of life, many americans every year make costly mistakes when it comes to taking out a loan. There are lots of reasons that taking out a loan ends up not working out according to plan as anyone dealing with debt collection can attest to. There are 5 big mistakes you can make and one king mistake, which is if taking out the loan will ruin your marriage or cause you to go into debt collections you shouldn’t take the loan out to begin with.
The top commonly made mistake by borrowers is not reading the fine print and loan contracts. There is always vital information you should be aware of buried within this fine print. It spells out fees, and other things that you are signing up for. Sadly most people just sign and never take the time to read and understand what exactly it is that they are getting into. Common things buried into the fine print are balloon payments at the end of the loan, or written in where they can increase your rates, sell off your loan on a 3rd party market or other things which can cause major problems. If you are applying for a loan by all means do read the contract.
Taking out a loan for someone else is a huge mistake, even worse than co-signing. At least with co-signing you have the other person on the hook credit wise right along with you should they default. Yet when you take out a loan and give the money to someone else they can simply avoid paying you back and you alone are left on the hook to face debt collections or scramble to make the payments. Simply put if someone else needs a loan do not take out the loan for them, if you must help them out then by all means co-sign for them and spread out the responsibility of the loan two ways.
The third big mistake I see borrowers do is taking out loans without looking at the long term picture. Your loan is going to be your responsibility for years to come. It is a long term responsibility and you should carefully consider your potential loans terms, rates and conditions before applying for a loan. You also need to consider how the repayment of the loan is going to effect you and your families budget since any loan will have an impact on your month to month living expenses. You want to avoid creating a new problem while trying to solve a current problem.
Paperwork errors and lack of preparation on the borrowers part is also a common mistake. Loans are not simply small forms that you just sign on the dotted line for. You are going to need things like your stay stub, you last tax return, a list of your monthly expenses like rent or mortgage payments. You should always ask the lender what they need before you make an appointment so that you can have everything you and your lender both need to go forward.