Personal loans are a tempting option when you need some quick cash for an urgent repair, medical bill, or unexpected fee. While they are great financial services, a lot of people underestimate what it takes to comfortably manage a personal loan. Sooner than they realize, they are caught in the loop of having to take out more loans to pay back the previous loans and protect themselves from exorbitantly high-interest rates. Nonetheless, personal loans are still a great option today if you keep these 6 things in mind before applying for one.
1. Interest Rates
Interest rates on the same value loan can vary a lot between different companies or banks. Keeping all other factors aside, you can see a significant difference in the base interest rate between different lenders. When you factor in the different rating systems that they have, and the way they lay out the payment plan, it all adds up. When you are comparing the difference between interest rates make sure you are comparing the same loan category. Interest rates on personal loans will also vary depending on what you are using the money for so keep that in mind when drawing comparisons.
2. Added Costs
Other than the interest rate you have to keep an eye out for the costs embedded in the fine print. Some lenders try to outsmart the client and they don’t mention these costs right away. It’s only later when you receive the bill that you realize that you are paying a lot more than you had anticipated. This is particularly true for companies that have a significantly lower interest rate than the rest of the market. Other companies will be a bit more straightforward and will give you a reasonably accurate idea of what you will end up paying and the different things that constitute that final bill. If something sounds too cheap to be true, make sure you read the fine print a few more times and ask a few more questions.
3. Credit History
One of the most notorious factors when it comes to applying for loans and getting a solid rate on your borrowed amount is your credit history. More specifically, to get the best personal loan for your specific case, you need to prove that you have a good credit score. The problem is that even if you have had a great credit score throughout but recently you have missed a payment or had any other mishap and that is why you are applying for this loan now, it will have a big impact on the score. Older entries carry less weight and recent entries play a bigger role.
4. Legitimacy
There’s no shortage of scams and frauds in the loans and financing industry. To keep yourself safe from losing all your money you need to know how to identify a scam before it’s too late. If you can’t go with reputable lenders due to a credit score problem or any other reason, try to look for an alternative that people you know have used. Word of mouth is also a great way to learn about potential scams. Just because a company is based on the internet doesn’t mean it will be a scam just like a business with a physical presence doesn’t ensure that it is legitimate. Do your homework on the lender before signing on the dotted line.
5. Repayment
When you are in a hurry to get cash to offset a problem you are facing, anything and everything seems like a good option as long as it is fast. The problem most people have is that they find a great deal in terms of the cost of the loan but they don’t pay attention to the repayment options. This is where some lenders will trick you into paying more. It might look like you are getting a great deal but when you cross the payment deadline, the expenses on the loan start to skyrocket. Understand the repayment terms before signing up.
6. Amount
In nearly all cases the larger the loan is the better the price on the loan will be. However, this also makes the arrangement that much more risky. Rather than being persuaded to take out more than you really need because it will be cheaper in the long run, stick to what you actually need and what you can comfortably pay back. Getting a big loan is convenient, but paying it back can be more challenging than you had initially thought.
Similar to when you are sick or you have a legal problem and you need solutions quickly when you need money this haste is what causes mistakes. The most important thing is to take your time before applying for a loan. If possible, try and finance the situation with savings or by borrowing from a friend. If you do in fact have to take a loan, go with a reputable lender and make sure you understand their policy thoroughly.