The thought of taking personal loans might pop up in our minds at some point in our lives, whether it is to pay our debts, buy things or perhaps starting our own business. However, when it comes to personal loans, being extra cautious is vital if we wish to prevent financial risks that may occur in the future.
Here are 5 mistakes you need to avoid when taking personal loans.
Disregarding credit score
There seems to be a lack of awareness among loan applicants on how important it is to check their credit scores before taking personal loans. Credit scores determine the interest rates of your loan application. Good credit ratings lead to lower interest rates, while poor credit ratings lead to high-interest rates.
Credit scores also affect the bank’s approval of your loan application, as they are able to trace your punctuality in paying bills and equated monthly installments (EMIs). According to CTOS’s general guideline, a good credit score is 697 and above, based on the three-digit system. Vice versa, you can improve a low credit score by solving the outstanding debts before applying for a personal loan.
Ignoring the fine print
On every page of the agreement, they will ask for your signatures as proof of your acknowledgment and acceptance to the terms. So when there is a binding contract between you and the other parties, you have to read the fine print very carefully. No excuse.
Be aware of the hidden clauses of the agreement, interest rates and the penalty costs on late payments before signing. Do not miss out on any information regarding your loan!
Failure to do a comparison
Explore all the possible options first before jumping into a decision. Conduct your own research and compare their interest rates, annual percentage rates, and loan tenures to ensure that it is the right loan product for you. Get advice from financial experts to establish terms and repayment plans if necessary.
Do you know that incomplete disclosure or providing false information can lead to legal action? You may be charged committing fraud and not only forced to repay your loan immediately but also to pay the penalty.
Thus, filling out the details with complete honesty is a must, and be as precise as possible.
No long-terms plan
Malaysians have a lot of debts, and usually because they are borrowing without any repayment planning. When you are taking a personal loan, it’s important to plan out your long-term finances. You need to think of how are you going to repay the loan while sustaining your financial needs and achieving financial goals. Without a proper financial plan, you might end up with tons of debts and short of money.
Read more: 9 Debt Myths Debunked