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Most of us have to borrow money at some point, whether that's an auto loan to buy a car or a mortgage to purchase a home.
Borrowing can help improve your financial situation if you are able to keep on top of payments. Loans can help you grow your net worth and build credit. But they can also become hard, or even impossible, to manage, if you make certain borrowing mistakes. In fact, some errors you could make when taking out a loan could devastate your financial security for years to come.
If you take out a loan, you don't want it to have an adverse impact on your financial life. Be absolutely certain you avoid these three borrowing mistakes.
If you aren't 100% sure you can make payments on a loan you're thinking of taking out, just say no to borrowing. Don't plan on your income increasing later. This could lead to major financial trouble.
Missing even one payment could damage your credit score for many years to come. That could make every loan you take out more costly or prevent you from getting the credit you need. And defaulting on a loan could lead a creditor to pursue collections efforts. They might sue you and garnish your wages or get a lien put on your property.
If you've taken a mortgage or a car loan and can't pay it back, you could end up dealing with foreclosure or repossession -- and you could lose the money put into your home or vehicle. Your credit could be damaged for a decade, too.
Always look at your budget before borrowing and make 100% sure that your new loan payment is comfortably affordable. If you have even a shadow of a doubt about whether you'll be able to make payments on the loan during the entire time you're borrowing, don't take out the loan.
The higher your interest rate, the higher the cost of borrowing and the harder it is to repay your loan. That's because more of your money will go toward interest so your principal balance will decline slowly.
You're also committing to a big financial obligation, which could make it harder for you to live on a budget or accomplish other financial goals. Borrowing at a high rate also cuts off your options in the future. You might not be able to switch to a job you'd prefer if you'd have to take a pay cut, for example.
Since getting the lowest interest rate possible is so important, shop around and get quotes from multiple lenders before you borrow. It's worth the effort to look carefully at different loan terms and compare rates from at least three lenders. You never know when one loan provider may offer significant savings compared with its competitors.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
When you borrow, you need to know:
If you don't fully understand the terms of your loan, you could end up with a variable-rate loan that becomes unaffordable down the road or a loan that requires a big lump-sum payment. Or you could end up stuck in a loan that you can't really afford and can't get out of. And this could lead to financial disaster.
Many people ended up with mortgages they didn't understand in the lead up to the 2008 financial crisis, and millions ended up in foreclosure or almost lost their homes because of it. While this is an especially big problem with mortgage loans, you should know the details of any borrowing you do -- even if you're just signing up for a credit card.
If you understand your loan, you can make an informed choice about whether it's the right financial move for you.
If you can avoid these borrowing mistakes, you should be able to stay out of serious debt trouble. Your debt can be a tool that helps you accomplish your goals rather than an albatross around your neck that makes money management impossible.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $10,000 loan at 8.49% APR with a term of 5 years would result in 60 monthly payments of $205.12. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2024 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.