When people posit that human beings are insatiable and that we’ll always experience needs, they are actually stating the obvious. The needs will always be there and they are easily identifiable. But the major problem is how to meet them.
For example, when I was about to take a vacation where I’d be visiting many football stadiums in different countries of Europe, I decided to call my banker and demanded to know how much will it cost me to use the services of my credit card out there.
One of the banker’s suggestions was to consider taking a personal loan. But being well informed about the rudiments of personal loans, I kindly declined the offer. This is because a personal loan is actually not a good option for such a trip.
The simple meaning of a personal loan is a loan that is given based on your income and credit history. Such loans come without any collateral and have both pros and cons. Personal loans can be very beneficial in case if you are facing emergencies, but not when you want to take a vacation.
While this is one of the fastest ways to lay your hands on usable cash to solve immediate problems, it comes with a higher percentage than other loans. So, before you take that kind of loan, consider the points, listed below.
1. Reasons to Take a Personal Loan
The first thing to consider before you approach any institution to ask for a loan that comes without collateral and yet costs more than many others is do you actually need it. Just as it is posed above, such a loan is most appropriate in times of emergency.
Personal loans are best for things you can actually afford, but because of their urgency, you don’t have the needed funds now. You have to understand that you mustn’t always use these loans for the reasons they were advertised by the banks. By advertizing these purposes of loaning, banks make use of the most attractive reasons.
But in the long run, these may not be a perfect option for the borrower. So, when they offer you loans for vacations, to purchase the latest smartphones, or to get the desired engagement ring, think twice before accepting them.
These loans should not be used for gambling, which you can never be sure of or for down-payment on a new home when the essence of the down payment is to show that you can actually handle the purchase.
2. Best Lenders
The source of personal loans also matter. While many people will have the banks as their first port of call for lending services, there are many other lenders that can deliver better options.
So, you really need to shop around before you decide which lender to use. Better services, better deals, and cheaper rates and fees could be gotten from the nonprofit credit unions around. They do not run this as a business but as a means of assisting people in financial needs.
So, they promise to have something better for you. Also, consider the new range of marketplace lenders. Here, you may have names like ‘Prosper’ and the like delivering very good rates and cheap fees, while making the entire process less rigid and cumbersome for people with good credit scores.
3. The Cost of the Loan
One of the major things to put into consideration when personal loan issues are discussed is the cost of the loan. The truth remains that the interest rates on personal loans will definitely be a double or more of what people pay on other types of loans.
There is a simple explanation for this, and that is because you are not presenting any collateral for the loan. So, because the lender is harboring greater risk than in all other loans, you get to pay more. Now, you should try to understand everything you are paying on the loan.
Beware of some hidden costs that will make the rates and fees escalate. That is why you must read the fine prints thoroughly and understand all of the points.
4. How It Will Impact Your Credit History
Now, even before you get the loan, the lender scans through your credit score. Since the conditions of a loan are offered based on your creditworthiness, it also impacts your credit itself.
For many lenders, the fees and rates are set based on whether you have a poor or decent credit history. When you eventually get the loan, your credit score will definitely nosedive, and this will impact your financial status in the future.
In many cases, some federal benefits and other loan protections may be lost when you agree to this refinancing.
5. The Pay Back Plan
The payback plan is another thing to consider when getting a personal loan. Together with considering your past and present financial standings, also pay attention to your future financial situation. The personal loan has the potential to mare your life if not properly handled.
So, calculate the loan and understand the exact amount you will start paying by the next month. When you do so, ask yourself about your plans to make repayments. If you don’t have any yet, or you are not sure of the ones you have, you should avoid the loan.
You must have a clear cut income and budget that leads to the loan repayment before you sign the dotted lines. Therefore, be sure to calculate your finances and manage money correctly.
Conclusion: The basic things to consider when you are about to grab this type of loan are summarized in five points. They include going for the loan for the right reasons, using the best lender, understanding the cost of the loan, knowing how it affects your credit rating, and having a workable repayment plan. When you get it all right, then you are on your way to getting an amazing personal loan.