6 Factors to Consider Before Taking Out a Personal Loan

A personal loan refers to money that you borrow from a financial institution to use for any purpose. Your creditworthiness to qualify for a personal loan is evaluated through your income and credit history. Personal loans can either be secured or unsecured. For instance, student loans don’t require a collateral. On the other hand, a lender may require you to provide a collateral, such as a savings account, cash deposit, or certificate of deposit (CD) to get a personal loan.

You may secure a personal loan to offset your credit card dues as it has a low interest rate. This low interest rate reduces your burden compared with other types of loans. It’ll also take you a relatively shorter time to pay off your loan debt because of this low interest rate.

Where Can You Get A Personal Loan?

There are unlimited places where you can get a personal, secured, or unsecured loan. It can be from credit unions, banks, or online lenders. You may use a bank if your credit history is great or if you have a bank account. Meanwhile, individuals with poor credit history may find it tough to qualify for a personal loan in a bank.

The advantage of going for credit unions is that they have lower interest rates compared with banks. They also lend even to people with low credit history. However, you may be required to get membership first or visit a branch to apply.

You can make an awesome deal with online lenders. Their rates are competitive, credit requirements are relaxed, and funding is almost instant. But you may have to do a lot of research to get the best rate available.

When you’re in need of a personal loan, don’t be in haste to get one. You may need some prerequisite information first. Here are some factors you need to consider before you take out a personal loan:

1. Have A Good Credit History

A credit score determines your level of creditworthiness. The lender will base this on your credit payment history. A credit score ranges from 300-900, whereby, 750 or above is regarded as ideal. A low score shows that your debt management behavior is bad. This may cause the lender to reject your application or impose higher interest rates on your loan.

To maintain a great credit score, ensure that you pay your dues promptly. You can consider automating your payments to avoid forgetting making them. Another good way is by limiting the number of credit cards you use. Boost your creditworthiness by using a credit card that has a good credit history. Financial advisors insist that you should be disciplined; never go past 30% of your credit utilization.

2. Compare Market Interest Rates

Taking time to compare existing interest rates for personal loans from different lenders enables you to get the lowest rates. Platforms like Paisabazaar, Myloancare and Bankbazaar are good sites that can give you valuable data on current personal loan interest rates. This’ll help you choose a loan that accrues the least interest rate, making you settle your loan with ease.

3. Assess All Associated Costs

When lenders give out loans, these may have attached costs like processing fee, late payment fee, and prepayment fee. Before you apply for any personal loan, get to know the different fees charged so as to have a good estimate of the expenditure. This will ensure you manage your finances well and help you judge whether the loan is worth taking.

4. Let Your Needs Determine Your Loan Amount

Write down the things that you need. Out of the list, prioritize the things that should be financed by the personal loan. Considering the cost of each expense, calculate the total amount that you should borrow. If the amount seems quite large, you may opt for a flexi personal loan. A flexi loan is a form of personal loan that adequately caters for your immediate financial needs. It has a pre-approved amount limit.

5. Consider Your Ability To Settle The Loan

Get your plans ready on how you’ll repay the personal loan. You may do this by channeling some income percentage from your investments toward the repayment of the loan. Ensure that the funds are available to repay your loan within the required time. As you do this, put into consideration other financial responsibilities and debts you may have. By this, you’ll avoid unbearable financial burden in the future.

6. Beware Of Gimmicky Plans And Offers

Some lenders have rates that appear to be low, but have buried fees and costs in paperwork. Such loans turn out to be shockingly expensive. Deal with honest and transparent lenders for a satisfying personal loan experience.

Final Thoughts

Financial pressure may come to anyone. When this happens, looking for an immediate source of money may become inevitable. A personal loan may be the best option because of the discussed advantages above. Make sure that you put into consideration the factors enumerated so as to avoid making unnecessary mistakes you’ll soon regret.