We all want some things in life that we couldn’t acquire immediately. But a personal loan may help in some cases.
If it’s for a material thing like a car or bike, the extra budget for the wedding, additional help for some expenses or anything that you would need to fulfill your requests, applying for a personal loan is the best option you may have. However, it;s a pretty big decision and being impulsive is not the right attitude you should imply.
Here’s a list you need to deliberate before taking out a loan, a list that will help bring you closer to your goals and not to financial failure.
Meet the Requirements
You should be an adult with a competent income to pay back what you borrow.
Lenders usually ask for personal information to make sure that they are dealing with a person and not a gold-digger lurking around to gather something they don’t really possess and they are not able to give back.
To make sure that you’re not going to drown in debt, financial experts analyze your financial situation including your gross income. The details of your employer are needed as well and some requirements include your address, phone number, social security number, date of birth and of course, your name.
Check your Credit History
It’s important that you pay off any due bills that could reflect as a late payment on your financial statement. Also, double check if you have any pending credit card dues to prevent a bad impression in your credit history.
The most important thing to consider before going out to a lender is to check your own score. There’s a standard score one should attain to be eligible for the loan offer. It would be better if you have a good payment history and record so it won’t be hard for you to apply. If you have a bad credit history you don’t have to worry because there are a lot of lenders who offer loans for people whose credit history doesn’t look good.
What are the Interest Rates?
Everything is business. They will lend you money and they’ll get profit from the interest rate they will top up from you borrowed amount. Regardless of the type of loan and amount, you should always pay attention to ensure you’re not being played on. You might end up paying the interest alone and not the exact money you have borrowed from the very start.
Most financial institutions have a series of hidden fees included in the rate they kept waving off from your application, and may includes the following:
- Origination fees
- Appraisal fees
- Underwriting fees
- Administration fees
- Credit report fees
- Processing fees
Sometimes the fees listed above are not the exact reason why your interest will increase, but they might act as another luggage to your monthly payments aside from the money you borrowed. If this is the case, you better choose another loan with a higher interest rate instead of paying monthly fees that don’t help you at all.
Know the Difference between Need and Greed
People apply for an instant loan for various purposes, for instance where sometimes one’s life is at stake. But reasons should not include applying for a loan “just because”.
Borrowing money today is so simple, but are you aware of the risks? Instant loans are very specific in helping individuals with their expenses. When you take out a loan, remember the purpose matters and if you’re taking this for granted, you could end up in a lot of trouble with debt in the long run.
Qualifying for a personal loan feels great especially if you really need the money.
Furthermore, consideration of taking out a loan in a respective and reasonable manner is a must. Start by practicing good credit habits to ensure your financial success and not just with the goal of getting approved for a loan. Besides, the better score and history you have, the lower interest rate you will be given.
3 thoughts on “4 Factors to Consider Before Taking out a Personal Loan”
I love how you stated that you first have to know the difference between need and greed before taking out a personal loan. Personal loans have a much higher interest because it is an unsecured loan which means you don’t have anything to put up as collateral for the lender to take away, just in case you cannot pay them back. For a home loan or home equity line, the collateral is your home which means if you don’t pay the lender back, they will foreclose on the home and turn around to sell it someone else and possibly also tax you on the remainder of what you owe as income.
Since personal loans are higher risk to lenders, they are usually looking for a much higher fico score before they are willing to lend. This is just to make sure you’ve had no problems paying your bills in the past, which is a fairly good predictor of whether or not you will pay them in the future. Of course there might always be extenuating circumstances such as losing your job which may affect how timely you can pay the loan back. Paying off any overdue bills is certainly a great starting point to improving your credit score.
I’m personally not a fan of personal loans to begin with. Like you said, the interest rates are high and overall, they’re really not worth it. Although sometimes, they do come in handy, I do believe it’s best to avoid them unless you really *need* one.