5 common mistakes to avoid when applying for a personal loan

Getting a personal loan may enable you to meet a variety of different needs, whether it's debt consolidation, an emergency expense, or meeting another financial goal. You can often choose a lender, apply online, and get a decision in minutes. Funds may be delivered to your bank account as soon as the next day. 

But that's all as long as things go smoothly. A small error or omission on your application could slow things down or, worse, lead to a denial. 

What are common reasons personal loans are denied? And what application mistakes should you avoid? Read on to learn how to improve your ability to get a personal loan.

Applying for a personal loan? Start by knowing what to avoid

Personal loan applications are usually straightforward. Lenders typically ask for your personal information and some details about your finances, then check your credit as part of the decision process. There are, however, some little things that could trip you up in a big way.

What should you avoid when applying for a personal loan? You don't want to include incorrect information on your application, or leave out key details the lender asks for. 

Besides that, it's a mistake to apply for too many loans at once or to skip rate checks to learn how different loan options compare. Here's more on what not to do when applying for a loan.  

Mistake #1: Applying without checking your credit score

When it comes to preparing to apply for a loan, checking your credit scores is at the top of the list. A credit score is a three-digit number based on your credit report data that tells lenders about how you've handled debt in the past. 

Lenders will check your score when you apply for a loan, so it makes sense for you to know what they'll find out beforehand. You can get free credit scores from a variety of sources, including most credit card issuers, as well as directly from Experian and FICO.

It's also a good idea to check your actual credit reports. You can do this for free once a week through AnnualCreditReport.com. Mistakes or errors on your reports could be dragging down your credit score, so address any issues right away.

Mistake #2: Submitting too many applications at once

How many personal loans can you apply for at once? Technically, as many as you want, but that's not a good idea. Why? Because too many applications could hurt your credit scores. 

One of the factors that go into your credit score is how often you apply for credit. When you apply for a loan or credit card, you get a new hard inquiry on your credit report. Each inquiry has the potential to knock a few points off your score. 

Instead of applying with multiple lenders, use prequalification to find out what terms you might qualify for, without any impact to your credit. When a lender prequalifies you, they give you a rate estimate based on what's called a soft pull or soft inquiry of your credit. Soft pulls don't affect your credit scores at all. 

Loan prequalification isn't the same as final approval and your terms might change once you submit the full application. But prequalification could still help you avoid multiple hard inquiries.

Mistake #3: Focusing on the monthly payment only

When you get a personal loan, you have to pay it back monthly. So it's smart to calculate your estimated monthly payments before you apply to make sure you can afford them. 

Where you could make a mistake is looking at just the size of the monthly payment. You also want to consider the total cost of the loan overall, including fees and interest costs. In other words, consider all of the factors that affect what you'll pay:

• Annual percentage rate (APR). Your APR represents the annual cost of the loan, based on the interest rate and fees the lender charges. Lower APR = lower costs. The APR is a quick way to compare loans.

• Interest rate. The interest rate on a personal loan is the rate the lender charges you for the convenience of borrowing. Personal loan interest rates are usually lower than the APR, but the rates may be the same if the lender doesn't charge any fees. 

• Fees. Personal loans may have several fees—or none at all. The most common fee is an origination fee, which typically covers the administrative costs of getting a loan. Origination fees usually come out of the loan proceeds before it hits your bank account.

A personal loan calculator could help you estimate your total cost to borrow, based on the interest rate, fees, and APR. Find the total cost for each loan you're considering to figure out which one is the most affordable overall. 

Mistake #4: Borrowing more than you need

Lenders will ask how much you want to borrow when you apply for a personal loan. When you get a bigger loan than you need, you risk increasing the financial stress caused by the loan. You also may pay a higher interest rate, since many lenders charge higher rates for larger personal loans.

If you end up with more money than you need, apply the extra amount as a lump sum payment to the loan. That may cut down on some of the extra interest costs throughout the loan term and could speed up your repayment. 

Mistake #5: Skipping the fine print

A loan is a contract, so it's to your advantage to read through every line of it before you sign. Make sure you understand:

• How much you're borrowing, and what amount may be deducted to cover origination fees.

• Your interest rate, and whether it's fixed or variable. If the rate is variable, you should know how the rate is set and when it may go up or down. 

• What fees the lender charges and when they must be paid. 

• Your monthly payment and expected due date. 

• The total cost of the loan overall.

• Whether a penalty applies if you decide to pay the loan off early. 

Your lender should also give you an amortization schedule. This is a chart that shows how much of your monthly payment goes to the interest and the principal each month. Principal is the amount you borrowed. Your amortization schedule shows you how much interest you'll pay altogether if you make all payments as scheduled. 

How to apply for a personal loan with confidence

When you need a loan, you want the process to be as painless and stress-free as possible. Personal loan application mistakes are avoidable if you take your time and review the details before you hit submit. Peek at your credit scores and get prequalified to compare rates, then look at all the loan details, from the payment to the APR to the fees. 

Ready to get started with a personal loan? Check your rate for an Achieve Personal Loan today. It won't affect your credit and you could get results in minutes.