At the beginning of the new year, your cash flow is probably tighter than your jeans (that managed to fit before Christmas.) You might therefore be searching for a loan to help keep you afloat.
Getting a loan can be a complex process, especially when the conditions attached can be hidden in the fine print.
When it comes to being financially literate, it’s more than making sure you tick certain boxes - there are also some things you definitely should not be doing.
If you’re in the market for a loan or a credit card, and want your application approved quickly, here are five mistakes you should be avoiding.
#1 Lying about your income and expenses
Whilst it might seem like a good idea to fudge your expenses a little, lying to the bank about how much money you make and how much you spend could do more harm than good.
A lender may not check your income and expenses on your application, but giving figures that are incorrect is considered fraud, which is illegal.
If you intentionally falsify your documents or provide inaccurate information, you could lose your loan, even if your intent is not malicious. Your lender could demand immediate repayment, and you could face criminal charges.
Fraud aside, lying about your situation is also detrimental to your financial situation. If you tell the bank you earn more than you do, or spend less than you do, you will most likely have a much harder time making your repayments, and you could end up in serious debt.
#2 Not checking your credit score
One of the most common mistakes people make when applying for a loan is that they don’t check their credit score first. Your credit score is based on your credit history, and your current debt levels.
Since the arrival of Comprehensive Credit Reporting (CCR) in July 2019, your credit score reflects your trustworthiness as a borrower, based on both positive and negative credit information. Positive information includes data showing you are able to repay loans, and negative information can show details of when you missed your repayments or defaulted on a loan.
To give you a better idea of whether you will be approved for the loan you’re applying for, it's a good idea to first check your credit score for free. If you find it’s below average, see what you can do to improve it before you apply.
#3 Not reading the terms and conditions
Ever caught yourself clicking that you “Agree” to terms and conditions you haven’t actually read? You’re not alone.
Terms and conditions can be complex, long winded and full of complex jargon that doesn’t really make much sense even when you read slowly. However, when it comes to applying for a financial product from a lender, it’s imperative that you read the Product Disclosure Statement (PDS).
Yes, it may be boring, but grab yourself a cup of coffee or a glass of wine and strap yourself in, because if you don’t check the details of what you’re applying for, you could get yourself into financial trouble.
Educating yourself on exactly what you are signing is the key to true financial awareness. The PDS will outline the contract terms, any fees you could be charged for not making your repayments, details about applying for extensions if you experience financial hardship, and much more.
This is a legal requirement that all lenders must supply you with when you decide to take out a loan, and includes all contract terms. Once you sign on the dotted line, that is a legal agreement that you agree to those terms, so it’s crucial you understand what you’re committing to.
#4 Making multiple applications at the same time
If you’re in the market for a new rental property, or looking for the best insurer, it might be a good idea to send off applications to different companies, and source a range of quotes to choose from. This process can be quite useful for these industries, but in finance this is not a smart move.
Filling out a number of lender applications at the same time negatively impacts your credit rating, and directly impacts your chances of having your loan application approved. Sending off also makes you look like an unreliable borrower who is just hoping to get some cash quickly.
This is a common mistake amongst borrowers, due to the speed at which you can now apply for a loan online. However, if you want your loan approved, do not fall prey to applying just because it’s a quick application process.
Even if you see a lender advertising that their loan application will take under 60 seconds to complete, make sure you only apply for the loan that is best suited to you.
5. Not shopping around
To find the best loan for you, it’s important to compare financial products from different lenders. Not shopping around for a loan before you decide to complete an application could end up costing you thousands of dollars in interest.
Visiting comparison websites like RateCity to compare each loan you are considering will allow you to see which loan is best for your specific financial situation.
When comparing loans, there are a few key features you should consider:
- Interest rate - how much interest you will pay on the loan?
- Loan term - how long will you have to repay the loan?
- Fixed or variable rate - will the interest rate stay the same, or will it change?
- Fees and charges - what fees are charged on the loan?
- Repayment flexibility - can you repay the loan early without penalties?
It’s also a good idea to take advantage of online loan calculators and tools like the RateCity Personal Loan Marketplace, which can let you know which loans you may be approved for, without negatively impacting your credit score.