Due diligence is a term most commonly associated with investing. Before putting money into a business, or a fund, or any other opportunity, investors are typically expected to understand what they are signing up for. This means researching it, understanding the risks, and verifying the information they have been given.
However, the same principle can be useful in everyday life and apply to other big decisions. Ultimately, in its simplest form, due diligence means checking the facts before making an important decision.
Many routine decisions have financial consequences. When you decide to take out a loan, this could leave you with years of repayment. Accepting a new job will affect your income. Hiring a contractor can involve thousands of dollars, so you want to make sure you are picking someone you can trust.
Naturally, this doesn’t mean that you should investigate every purchase like it is a major corporate acquisition. Due diligence takes time and effort. But it is definitely something you need to consider when money, personal information, and/or legal obligations are involved. More often than not, these few extra checks can make a big difference in the long term.
Before Taking Out a Loan
Getting approved for a loan is not the end of the process, even if it feels like it. This is particularly important if you are rushed for time and likely to accept any loan agreement to get the money fast. In reality, the moment you are approved should be the start of your own research, as you get approved with specific terms that are unique to your circumstances.
What should you check?
Start by looking beyond the monthly payment. For instance, a lower payment may seem more affordable, but it could result in a longer repayment period that ends up increasing the total amount you pay.
You also want to check the annual percentage rate (APR) along with the fees, repayment period, late payment charges, and any other penalties and conditions associated with paying the loan off early. It’s worth comparing offers from several lenders whenever possible. This would ensure you don’t assume that the first approval is the only possible option.
You also need to research the lender itself, especially if you have never heard of the company before. You don’t want to provide sensitive financial information before confirming who you are dealing with.
Last but not least, it’s always a good idea to take your time reading through the agreement before signing it.
Before Accepting a New Job
Due diligence during a job search usually focuses on the employer. As an applicant, you often research the company’s reputation, read employee reviews, and compare the proposed salary with similar positions on the market. But there is more to it than meets the eye.
Some employers conduct thorough background checks before confirming employment. To do so, they often use an external screening company. So, you may be suddenly asked to provide personal information to a business you have never encountered before. It is helpful to research it first as a sensible precaution. A commonly used screening company is called Checkr, so as an applicant, you may find yourself typing in the search engine page “Is Checkr legit?” This is a great start to find out more about the company, its screening process, and what to do if the information in the report is not accurate (as this is also a risk with screening procedures).
Sometimes, screening services can even help applicants discover which information is being used to make decisions about them, and this can include uncovering mistakes and issues, like mistaken identities, outdated details, and inaccuracies that, if left uncorrected, will affect their future employment.
Before Paying a Debt Collector
A message saying you owe money is designed to get your attention. It often comes with a sense of urgency, but that doesn’t mean that your first answer should be to make a payment without questioning it.
When you receive a message about a debt from a debt collector, it is important to establish who is contacting you and what the debt relates to. You should be able to check the name of the original creditor as well as the amount that you allegedly owe. At this point, it’s easy to see whether the information matches your own records or not.
Beware, as even if you recognize the creditor, it doesn’t mean that the entire claim is correct. It doesn’t mean that the debt is a scam either. Administrative mistakes can happen for a variety of reasons, so it is worth checking the claim and getting in touch with a relevant interlocutor to discuss it. This will also ensure you don’t fall victim to scammers.
Red flags include:
- Being pressured to pay immediately
- Forcing you to use an unusual payment method
Even if the caller knows your name, address, and other personal details, this is no evidence that the payment request is genuine.
Before Hiring Someone for an Expensive Job
As a consumer, you routinely spend hours or longer comparing products online, even when these are inexpensive. It is important to apply the same thorough approach to a larger purchase. While this may seem obvious, in reality, a lot of big purchases can end up being agreed upon after a single conversation.
This is the case when you hire a contractor for a home improvement project, for example. These types of projects can cost several thousand dollars. No matter how good a judge of character you may be, it isn’t entirely safe to make the decision without doing some basic research first.
So, you can start with reviews and previous work. Depending on the type of project and local requirements, you may also need to verify licenses, credentials, and even insurance.
You will also need to receive the scope of the work and costs in writing. The agreement should make it clear what is included, when the payments are due, what warranties and guarantees apply, and how any unexpected additional work will be handled.
Finally, you also want to pay attention to clear red flags, such as large upfront payments with no clear information about what they should cover.
Ultimately, due diligence doesn’t have to be complicated or time-consuming. But it needs to answer one clear question before you make a decision: Is it legit? So what you research will, of course, vary depending on the situation you are in. Yet, the purpose remains the same every single time: Due diligence is here because gut feelings play no role in financial commitments.
