Have you ever heard of people who apply for a personal loan to buy unnecessary luxury that they couldn’t afford with their salary? I have heard of a man who apply for a personal loan to buy a Bengal tiger. A woman in the UK who has no savings and live only on government benefits applied for a personal loan for a nose job and she got it. The strangest thing is that the creditor agreed to lend her £5,000 instead of the £4,000 that she asked for. The reason was because it was cheaper at 10.8% interest rate, compared to 15% for the £4,000 loan!

The story about this woman goes on. After paying £3,600 for the nose job at a local private clinic, she used the remaining £1,400 for hair extensions, Christmas presents and making the monthly repayments. As soon as she ran out of cash, she stopped paying and the bank lend her a further £1,000. As she is now £10,320 deep in debt and is still on government benefit, she has no hope of repaying it any time soon.

If you think about it, besides the fact that it was also silly of the borrower to get a loan for a nose job while she doesn’t even have a job to repay the loan, the bank too has practiced irresponsible lending. There is also another story from the UK where a bank lent out £100,000 to a couple who was making only £5,000 a year between them.

These strange personal loans have now come to an abrupt end since the recession and credit crunch. Nowadays, nearly half of the applications for personal loans have been turned down. Now you need to prove to the lenders that you are credit worthy. Unless you are a low-risk borrower, you may not stand a chance for a low-rate loan, as lenders have tripled their rates for high-risk customers.

If you find yourself in a position where you need to apply for a personal loan, keep the following pointers below in your mind:

1.) Do not borrow more than you need
Getting a loan may seem like an easy answer for your problem at the moment. But borrowing money is a dangerous game. If you don’t really need the extra amount loan, then don’t take it.

2.) Do not get a personal loan for a luxury that you can live without
A new kitchen may sound acceptable to you but if you think you can live without it and delay your dream while you save money first, it is best to do so. As I wrote above, borrowing money is a dangerous game.

3.) Pay it off fast
The sooner you pay off your loan, the less you pay in interest cost. So when you apply for a personal loan, make sure you choose the shortest repayment schedule.

4.) Before applying insurance to your loan, read the small prints
Many people find themselves not eligible to claim, although they are in situations where you may think these insurance would cover. Before paying extra money for insurance premium, make sure you read every small prints to see whether you would be eligible to claim the money.

5.) Shop around for a good-rate but only apply once
Applying for a loan will show in your credit file, and if you apply even without taking the offer, it will affect negatively towards your credit score. So before you apply for a personal loan, make sure you do your homework first and find the best interest rate for you and then apply.

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