For most people, getting a loan is simple and really, it should be. You shouldn’t have to go through hoops and mazes just to be able to borrow the money that you need, especially when you really, really need it. Essentially, loans should just involve people borrowing money, and then paying it back with interest after a given period of time. Simple.
Unfortunately, complications can arise. But these are often not because of what’s involved in the loan process. Most of the time, complications with loans happen when borrowers commit serious mistakes with their loans, or make very unwise financial decisions. What are these, you ask? To answer, we need to take a look at the primary things that you shouldn’t be doing whenever there’s a loan involved.
What You Shouldn’t Do with Loans
Here at Personal Finance Co., we’re happy to help our clients in any financially distressing situation they may be in, so we don’t restrict the use of our personal financing solutions. You have the freedom to use your loan for whatever purpose.
Be that as it may, there are several things that you should never be doing with loans, otherwise you could get into trouble, or greater debt:
- 1. Don’t use it to pay other loans. Loans are made to answer emergency needs, not to pay for other loans. If you use a loan to pay a loan, you’re just replacing an old debt with a new one, and it will lower your credit score in the process.
- 2. Don’t use it for things you don’t really need. Loans were not made for casual spending. If you get a loan for something that is unnecessary and outside your usual budget, chances are you won’t be able to pay it back.
- 3. Don’t get a loan that’s bigger than what you actually need. Some people get a loan that’s much larger than what they actually need at the moment, thinking that they’ll use part of it to pay back the same loan. The truth of the matter is you’ll only be paying more in interest. And borrowing more may just tempt you to spend more, so it’s better to just limit what you borrow to what you really need.
- 4. Don’t co-sign for others on a loan – that is, unless you’re sure you can trust the person who’s getting the loan. Remember that people who need co-signers to get a loan have been required to do so by their lenders because lenders believe they cannot pay for a loan by themselves. If you co-sign for their loan, you are going against the well-researched judgment of the lender, and that’s why you really need to think twice before you co-sign. It’s alright to co-sign for things like a child’s student loan, or a loan for someone with limited to no credit history. But if you’re really not sure the borrower can carry his own financial weight or if you don’t have the means to pay off the loan in case the borrower can’t, just don’t. Being unable to pay for a loan you co-signed can lower your credit score.
- 5. Don’t skip a payment. This is a must if you want to keep your interest low and if you want to keep a good credit score. The more you skip payments, the bigger the amount you need to repay; so even one skipped payment can cause a domino effect that you really don’t want to start.
- 6. Don’t get a loan you can’t afford to pay. This ought to be basic. If you’re getting a loan you can’t afford thinking that you’ll magically come upon some money by the time you have to pay it back, don’t go through with it. If you get a loan, make sure you have the means to pay for it.
- 7. Don’t... forget to tell the lending company if you can’t settle you payments. Telling the truth is better than running away from your loan payments. You can get sued and face penalties if you don’t pay and just run away. Also, you may never be able to get another loan. If you tell your lender about your circumstances and why you can’t pay the loan within the agreed period, they’ll help you find a more manageable way to pay it back.