3 critical mistakes that people make when they are applying for loans

Avoid these three pitfalls and secure the correct loan for your circumstances.

09:21 25 October 2013

It is misconception to think that at one time or another you will not have to take up a loan. There are some things that you can’t stay away from in this life: taxes, loans and death.

The motives for taking loans vary from individual to individual. In the process of taking it out, there are some mistakes that they will make along the way. The following section highlights what you should avoid doing so that you get the best loan out there.

• Being wary of the first loan

Most people will go for the first package they see on the loan officer’s desk. No due diligence. No background research. No nothing. Prudence dictates that you should have a little knowledge about what you are going to buy.

The danger about making a rash decision is that you only realize that it is a wrong decision when it is too late. You have become bogged down in the terms and conditions of the loan. Keeping your head above the water you have ventured becomes a very real problem.

To avoid getting into such a sticky predicament, you should look critically assess your current situation. Look at the papers thoroughly. Examine the subtext, riders and all other paperwork that comes with a loan application. If it isn’t for you, then take your business elsewhere. This is the only way of ensuring that you get the best possible offer out there.

• Loan repayment terms

Though it looks like a bit tricky at the outset, it pays to calculate how much you will owe. When sourcing for a loan, ensure that you and the loan agent reach an amicable understanding of the terms. Go into a meeting with your agent with a clear idea of what you can afford to repay, and set a limit on the repayment amount and the interest rate. If possible, try to know how long it will be until you have completely paid up the loan.

• Don’t get greedy

Don’t think of it as free money. The more you borrow the more you pay in terms of interest. To avoid this know for a dead certainty how much you need. This way you can avoid the wastefulness that comes with borrowed money.