Personal loans are a versatile option that can cover all kinds of big expenses. They usually have lower interest rates than credit cards, but like any other loan, they come with risks of their own. Before applying for a personal loan, you should make sure you have the means to pay it back on time. Researching and comparing different lenders can help you get the lowest interest rate and best repayment terms.
Unfortunately, misinformation is way too common regarding such topics. We have put together four common mistakes that most people make to ensure you don’t fall into a trap.
1. Are personal loans taxable?
Personal loans aren’t considered part of your income and typically aren’t taxable. However, you don’t need to report them on your income taxes. However, in some circumstances, you could end up facing tax implications because of a personal loan. A personal loan is a debt. As long as you are making the repayments on time, you don’t have anything to worry about. But if a part of your loan gets cancelled, you may end up in a very different situation. Personal loan taxes can be pretty expensive.
2. Purpose of the loan
One of the most common mistakes people make when taking out a personal loan is not having a solid purpose. Why are you applying for a personal loan? How are you going to use the funds if it’s accepted? Quick cash is a tempting lure but without a clear purpose, you might end up in a maze with no end in sight. Before applying for a personal loan, analyze what exactly you need the money for and note down how you will utilize it. This way, you won’t be tempted to deviate from the plan.
3. Not reading the fine print
No one enjoys reading the fine print. It isn’t exactly thrilling, but it’s important to read it carefully. The fine print explains your interest rates and repayment terms. Sometimes, lenders add extra charges, too, but they won’t always mention them. You will hear too many stories on the internet of borrowers who were surprised with hefty additional charges. So, it’s best to read the fine print word-to-word and ask questions when you are confused by something to ensure you don’t get blindsided by anything.
4. Taking out more than you need
It’s always tempting to ask for a little extra while requesting a personal loan. Extra cash never hurt anyone, right? Well, technically they can hurt. The bigger the amount can mean more repayments, which means you will be paying off a lot more in interest, too. All of those repayments and interests can end up being a lot. Is that something you can afford? Before you apply for the loan, sit down and think about exactly how much money you need. You also need to take your monthly income and credit score into account. Because if you struggle to repay and miss any repayment, it’s going to impact your credit score negatively.
Conclusion
If you are in a situation that requires you to take out a personal loan, don’t make any decision in a rush. Filling out loan applications in a rush can mean errors, which means your application could end up getting rejected. Make sure you sit down and make a proper plan before you take out that loan. From your income to your credit score, to why you need the loan and how much exactly you need, you should have a clear map of everything to avoid getting overwhelmed later. We hope this helps you avoid mistakes and make more knowledgeable decisions about the personal loan.
Disclaimer: Loan information provided is for educational purposes only, not financial advice. Seek professional guidance before making any financial decisions.
