Five mistakes to avoid when applying for a loan
A personal loan can be a valuable tool for managing your finances and getting support when you need it. However, if you are considering applying for a loan in New Zealand, and are worried about the mistakes or risks you may be taking, don’t be!
In this blog, MoneyShop will look at the five most common mistakes you could make when taking out a loan and give you ways to avoid them.
1. Not considering your budget
The first mistake people make when applying for a loan is not considering their budget. Yet, this is a crucial step when applying for a loan. While lenders do have responsibilities and won’t approve a loan if they believe you can’t afford it, it is still essential to ensure that you are confident you can afford repayments.
Although a loan may present exciting opportunities or enable you to escape a challenging financial circumstance, it leaves you with unpaid debt and interest to repay. Suppose you cant make repayments on time. In that case, this could affect your overall economic life and impact your credit score and, therefore, any future borrowing.
The last thing you want is your spending to swiftly spin out of control due to taking on more debt than you can comfortably repay. So check your budget, add the repayments, and do the maths. Will it be difficult for you to stay afloat if the application is accepted? or will it be simple for you to handle?
Personal loan repayments should not consume more than 15-25% of your income. If you need more clarification about your budgeting, contact someone from our friendly team here.
2. Not knowing your credit score
A crucial component of your loan application is your credit score. It determines whether or not your loan will be authorised, how much you may borrow, the frequency at which you can borrow, and what rate you will be offered. If your credit score is high, it can affect your chances of achieving a low-interest rate or even your loan being rejected entirely.
Credit scores are generally determined by:
- How much have you borrowed in the past, and where from.
- Whether you have paid your debst back on time.
- How often you have applied to borrow money.
- If you’ve ever ultimately failed to pay the money back (this will give you a meagre credit score).
A ‘good’ credit score’ in New Zealand is usually over 500; you can find your credit score here.
If your credit score could be better, we recommend raising it to receive a better loan. But, on the other hand, if your score is good – you’ve got nothing to worry about!
If your credit score is poor, don’t worry. You can raise your credit score in several ways before approaching a lender. Check here.
3. Not doing enough research
Though you may need instant cash, not waiting to consider your options could cost you more than you intended. While there are so many loan options, you want to avoid taking the first one that comes your way.
Spend some time considering what aspects of a loan are crucial for you so that your loan can be tailored to your needs. Also, be careful to only apply for credit from several different lenders simultaneously, as this will lower your credit score. You can read more about this on our blog here.
Be prepared to shop around and research lenders’ terms and conditions, repayment options, and even rates and fees.
Talk to our friendly team about our loans and which one may be right for you.
4. Settling for the highest interest rate
No matter the amount you are applying for—interest rates matter.
Different lenders offer a range of different interest rates, and what one lender considers ‘cheap interest’ may be at the top of the content provided by another lender.
Be sure to find the best interest rate that suits you and your financial and budget needs.
5. Not making repayments on time
Once you receive your loan, the process isn’t over. You will have to repay your loan at some point, and you’ll be amazed at how easy it is to forget! By making on-time loan payments, you will avoid late fees and other penalties and raise your credit score.
Organise a direct debit arrangement or schedule reminders in your calendar to keep things on time.
Apply for a loan
If you want to apply for a loan, we make the process as easy and stress-free as possible! With competitive rates, streamlined online service, and helpful loan information, the MoneyShop team are known as New Zealand’s most trustworthy loan provider. Contact our friendly team if you want to talk about small or large loan options in New Zealand.