Whether it’s failing to read the terms and conditions or overestimating available income to service debt, we’ve all made one or two loan mistakes at some point.

Some of us even continue to make loan mistakes on a monthly basis, meaning we pay more for our debts than we should be paying.

The good news is that know what to look for and knowing the most common loan mistakes made by South Africans can actually help you avoid them and make the best choices.

Are you making any of these 10 loan mistakes?

Loan mistake #1: Taking out a loan to cover other loans

Apart from those who are making use of a debt consolidation loan to simplify their finances and make their debts easier to manage there are almost no circumstances in which taking out a new loan to make repayments on an existing loan would be constructive.

The reasoning behind this is simple. If you cannot cover your existing debt repayment with your salary this month, next month may be the same and this time, you’ll have an extra loan repayment to deal with too.

If you’ve had an emergency and simply can’t afford your loan repayment for the month, contact your credit providers and inform them of your situation. They will be more accommodating than you would expect and you will save yourself a lot money by avoiding taking on a new loan.

Loan mistake #2: Not comparing loan options and taking any offer that comes your way

With a range of loan comparison sites and financial blogs available to guide you, not comparing your options and taking just any loan may mean that you lose on savings you could’ve enjoyed.

When comparing loans it’s important toconsider not only the interest rate that you’re offered but other fees that you will be charged such as initiation fees and monthly loan service fees. These may be relatively small and affordable but can add up when you have multiple loans.

Loan mistake #3: Considering interest rates but not initiation and services fees

As mentioned in the previous loan mistake, if you consider only the interest rates on offer but not the initiation and services fees you may just end up paying more for your loan than you would’ve had you opted for the loan with the higher interest. That being said, initiation and monthly loan service fees are generally more or less the same across most banks and credit providers.

Loan mistake #4: Not setting up an automatic debit order to repay loans and credit card balances

Life gets busy and remembering to pay your credit card and loan repayments on time, among multiple other bills and debts, is difficult. Not only do you risk forgetting to make your repayments or paying late but you will cause yourself unnecessary stress.

If you haven’t done so already, you should automate your debt repayments so that you are sure they’re paid on time every month. The same thing goes for saving money, if you automate savings you will soon be so accustomed to it that it will seem as though that money is not part of your monthly income at all.

Loan mistake #5: Taking on too many short-term loans

Short term loans and consumer debt such as store card balances and credit card debt carry the highest rates of interest and will seriously affect your financial wellbeing if used on a regular basis. If you have more than one short-term loan and are juggling multiple credit cards you are already paying the price for these high-interest short-term debts.

Another issue arises when consumers take out a short-term loan to pay other short term loans that are overdue. This may temporarily solve the problem but will only make your financial situation even worse when next month comes around and you have yet another debt that needs to be paid.

Loan mistake #6: Applying for more credit shortly after being declined

If you’ve applied for a personal loan and have been declined, be it by a bank or alternative financial services provider, applying for another loan shortly thereafter will only serve to make the situation worse.

When you apply for credit, this is recorded on your credit file and multiple loan applications within a short space of time will not be looked upon favorably regardless of the type of lender that you apply with.

If you’ve been denied a loan, do not try to apply for another one, even if you intend on using another lender. Rather find out why you were declined. You can do this by obtaining a copy of your credit report or chatting to a consultant to find out if they can shed some light on your situation.

Loan mistake #7: Not considering actual affordability

You may be able to get approval for further credit at a bank or alternative lender by passing their affordability checks but no one knows your finances and budget better than you. If you know that the real reason you are applying for credit is because you’re struggling to keep up with bills, debts and expenses than taking out another loan will only temporarily relieve your situation.

Before taking out a loan you should always review your own budget and be honest with yourself as to whether or not you can afford to make the repayments that will be required of you. We’re far too often tempted to take on credit and loans that we can’t afford simply because we qualify for them.

Loan mistake #8: Not reading the loan agreement before agreeing to the loan

You loan agreement will always contain important information that you need to know before signing it. This will include many things such as the details of your loan amount, the interest rate and initiation or on-going service fees.

Perhaps your loan agreement contains a clause warning you that there are early repayment penalties or perhaps your monthly repayment is actually higher than you had anticipated when you made your initial online loan application.

Whatever the case, it is extremely important to read and understand your loan agreement in full before approving it and allowing the lender to credit the loan to your account. Do not rush through this step, always get it done right the first time.

Loan mistake #9: Taking on credit for non-essential or unplanned spending

While housing, groceries and transport make up for the majority of our spending any money that is left is generally spent on non-essentials such as going out, take-aways and entertainment.

When you’re budget is strained and you’re becoming dependent on credit cards and short-term loans to make it through the month it’s time for you to stop spending.

Taking on credit for non-essential spending like purchasing new clothes or the latest mobile phone to hit the market should be kept to a minimum if not avoided completely.

Loan mistake #10: Avoiding creditors when you can’t repay your loans on time

One of the biggest and most dangerous things that financially strained South Africans do is avoid their creditors when they simply can no longer manage the repayments or when they encounter a particularly difficult month.

If you can’t make your loan or credit card payments on time the very first thing that you should do is contact your creditors and inform them of your situation. Not only can they offer you a “repayment break” or agree to have you pay less than the full amount due but they may even offer you the option of restructuring your loan to make your monthly repayments more affordable.

Remember that the best way to avoid making mistakes when it comes to loans is to avoid having to take them out in the first place. A reliance on credit to make it through the month and deal with unplanned expenses is not conductive to building financial stability and long term wealth.

If you do end up taking out a loan, always be sure to do your homework when applying for credit, only choose the most suitable options and make sure to avoid the common loan mistakes we discussed here!