5 common mistakes to avoid when applying for a personal loan

A personal loan can help you meet a variety of different financial needs. Your personal loan could serve as a debt consolidation loan, help you cover an emergency expense, or let you meet another financial goal. You can often choose a lender, apply online, and get a decision in minutes. If approved, you could have funds within days in many cases.

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

What are common reasons why 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.

Personal loan applications: Start by knowing what to avoid

Personal loan applications are usually straightforward. Every lender tends to ask the same questions, such as your personal information and some details about your finances. They then check your credit as part of the decision process.

While the process isn't complicated, there are some little things that could make it harder for you to get approved. For example, 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 within too short a window. Failing to check your scores beforehand, or to compare rates, could also be big mistakes. Let's learn more.

Here's more on what not to do when applying for a loan.

Mistake #1: You apply without checking your credit score

When preparing to apply for a loan, knowing your credit scores is at the top of the to-do 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 credit score when you apply for a loan, so it makes sense for you to know where you stand beforehand. You can get free credit scores from many sources, including most credit card companies and the credit bureaus. Lenders may use different score types and tier cutoffs when deciding who qualifies for credit. So the score you see could be slightly different from the one a lender pulls.

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.

Achieve is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

Mistake #2: You submit too many credit 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.

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.

If lenders see that someone is applying for “too much” credit too soon, or has “too many” recent loan applications, this can be a warning sign that the person is a risky borrower who is too eager to borrow money. This can cause a loan application to be denied.

Instead of applying with multiple lenders, use prequalification to find out what terms you might qualify for with each lender. Most lenders use a soft pull or soft inquiry of your credit for prequalification. Soft pulls don't affect your credit scores at all. For example, you can prequalify through Achieve Personal Loans to check your estimated rates with no impact on your scores.

Prequalification isn't the same as final approval. Final terms depend on full underwriting and may be different from the estimate.

Mistake #3: You focus 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. Consider exactly how the new personal loan payment would fit into your budget.

However, one common mistake on personal loans is when people only look at the size of the monthly payment. Before signing up for a loan, make sure you consider the total cost of the loan overall, including fees and interest costs.

Factors to consider include:

• 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 with the same term length.

• 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 the funds get deposited into 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: You borrow 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 taking on a bigger monthly payment or larger loan costs than you can comfortably afford. A larger loan amount may also require you to pay a higher interest rate, since many lenders charge higher rates for larger personal loans.

Get a clear picture of how much money is required to reach your goals before you apply for the loan. Then only apply for the amount you actually need. If you end up borrowing 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: You skip the fine print

A loan is a contract between you and the lender, so it's important to read through every line of it before you sign. Make sure you understand:

• How much you're borrowing, and what amount of the loan proceeds 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 loan payment and expected due date.

• The total cost of the loan overall.

• Whether you'd owe a prepayment penalty if you decide to pay off the loan early.

Your lender should also give you an amortization schedule. The schedule should include 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 over the loan term.

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. Most personal loan application mistakes are avoidable if you take your time and review the details before you hit submit.

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.