5 Tips for Taking out a Personal Loan
Banks offer many types of personal loans, some are secured and others unsecured. These types of loans are generally used for more short-term and domestic needs. Personal loans are sometimes harder to be approved for and have more restrictions. If you are in need of a personal loan, I have listed a few things you should keep in mind.
1. Check your credit report
Always check your credit report first before applying for any type of new debt. Your credit report is the first thing lenders look at when qualifying you for a loan of any kind. If your credit report is in excellent shape you will be offered the most beneficial interest rates. A credit report showing a lesser rating may not be denied a loan but you will definitely be offer a much more expensive interest rate.
It may pay to put off your loan application until you fix errors or pay off bad debts. This will improve your credit rating and banks will reward you with a better interest rate.
2. Shop around
As with any major financial decision in your life, it’s important to shop around and compare rates. Don’t just compare the interest rate, compare the APR (annual percentage rate) because it will tell you all the components of your payment. Many people don’t realize your payment also includes interest payable, plus any other charges and fees.
Your local bank may say it is offering you the best rates but it pays to check out other lenders. Today we have so many sources of credit. Check your local lenders as well as regional ones. There is a lot of competition so also go online for a complete picture of all the lenders ready to write you a loan.
3. Is there any early repayment charges?
It may not occur to you when you take out a personal loan, but you may want to pay off your debt early. If you think you will want to settle your debt early, some lenders will apply a charge, so check on this before signing for your loan.
4. Check the fine print
Before you apply for a loan, check the fine print to see if you are qualified for the rates offered. Some lenders offer teaser rates to get you in the door and they may later say you don’t qualify for those low rates. Some lenders offer an incredibly low rate but only to applicants with top credit scores.
Also read your loan documents thoroughly, there always rules and stipulations that go unnoticed. Be proactive in searching for these items.
5. Know the risks of secured loans
Secured loans are cheaper than unsecured loans but you will lose your collateral if you don’t pay back the debt. For secured loans your house is your collateral. If you apply for a secured loan you must have sufficient equity in your property.
With unsecured loans the risk is mostly on the lender, with secured loans the risk is on the borrower.
When applying for a personal loan you may find it easier to apply from the bank you have your checking and savings accounts with. The bank may want to offer you a better loan because you are already a good customer and wants more of your business. As with all types of debt, borrowing money is a decision that must be taken seriously. Having a stable income and proper assets to pay the debt back is essential, if not do not apply for loans.
Category: Loans
