Most Common Loan Problems and How to Avoid Them

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The following is a guest post. Enjoy!

There are some situations in life where taking out a loan is a sensible solution to a short-term problem or need. In the modern day, there is no stigma attached to having a loan, and the majority of people purchase their properties by loaning money from a bank as a mortgage. However, there are lots of other situations in which people might choose to take out a less substantial loan.
Whatever your reasons for taking out a loan are, there are some common problems that you should make yourself aware of before entering into any kind of agreement:


Loan Problem # 1 – Unrealistic Repayments

The most common problem that can arise is that you agree to repayment amounts that you cannot afford. You must always factor in your income and other financial outgoings and commitments when you look into how much you can afford to pay back each month.
The precise length of term agreed for your repayment will affect how big the monthly amounts are, although having the loan for longer will cost more in interest payments.


Loan Problem # 2 – Choosing the wrong amount

It can be tempting when taking out a loan to actually borrow more than you need, which ends up costing you money in the long run. Also, if you are using the loan to finance something like home improvements, it is usually best practice to overestimate what you might need, as there can often be unforeseen costs which push the final bill higher.


Loan Problem # 3 – Getting into bad habits

Having too many loans at one time or a continuous series of loans, one after another, can cause difficulties when it comes to repayments. This could also point to a more fundamental problem in your personal financial arrangements.
Although the historically low interest rates that currently exist mean that there are plenty of cheap loans on the market, you should still treat a loan as an exception rather than a standard financial tool that you regularly use to get by.


Loan Problem # 4 – Choosing the wrong lender

The old term ‘loan shark’ sadly still exists, so it is always important to make sure that any money you borrow is from a reputable lender who is fully compliant with all financial regulations. Obviously, all licensed banks and credit unions will be safe to do business with and have legal obligations, ensuring that they only lend money to people who are able to pay it back without getting into further financial difficulties.

How about you all? What are some common problems either you have personally made or that you have seen others readily making?

Share your experiences by commenting below!

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  1. We are planning the steps to buying our next house, and I hope we don't come across any problems! The first time we bought went so smoothy!

  2. cstirbis1 says:

    I hate loans. Hate. Hate. Hate! Student loans haunt me. I wish that I would have had more knowledge about them at that point in my life, but unfortunately I didn't and now I'm stuck with all of them.

    • Thanks so much for sharing! What is the interest rate you’re currently paying on your student loans?

      • cstirbis1 says:

        Hi! Well, it's never just that simple. I'm paying a variety of interests rates from 2.5% to 6.9%. My loans are private loans (unfortunately) and they are spread across 3 companies. It used to be 4 but I got it down to 3! Each company has multiple loan groups with different interest rates. I write letters to them saying that any extra money I pay should be applied to the highest interest loan group, which thus far, they have honored. I haven't consolidated because mathmatically it doesn't make sense, and they are not federal, which makes income based repayment and any deferment options unrealistic. Essentially I could lower one or two of the loan group payments themselves, but not actually be able to not pay one company. Then I would accrue interest, therefore, yet again, not smart in terms of the numbers. Here's what I do: Pay them all off as soon as possible and take full responsibility. Sometimes it's just hard :/
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        • sounds like you've got a good beat on things! how are you approaching the payoff – highest interest rate first or lowest balance first?
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