In the past, people that get short of cash turn to their relatives or friends for assistance. However, the situation can be embarrassing when your relative or friend chastise you for asking to borrow. Nowadays, people that are short of cash turn to personal loans for quick financing. Approval is quick for the qualified borrower since you can get cash a few hours after the loan application approval. The interest rate might be higher than the norm, but it is one good way of solving your financial issues.
Here are the salient points that you must know before applying for a personal loan.
Do Not Require Collateral
One attractive feature of a personal loan is that it does not require collateral. When you need money, but you do not have anything of value to offer as security, a personal loan is the best option. You do not have to own a car or a house to get credit. However, because the loan is unsecured, lenders tend to charge high-interest rates.
Because the lender relies on your honesty and willingness to repay what you borrowed, most of them require you to have a good credit standing or score. Your credit rating will show the lenders that you are responsible enough to honor your commitments and financial obligation.
Before sending your loan application, do your research and make a comparison of several lending institutions in terms of the maximum loan amount, requirements, repayment plan, and interest rates. By doing this, you can find a lender that offers the best deals for you.
Firms that grant personal loans do not require you to have someone to sign the contract as a cosigner. No one would know that you have applied for credit. The high-interest rate is the lender’s way to minimize the loss in case you fail to repay your loan.
Personal loans usually have fixed interest, which means that the interest stays the same throughout the life of the loan regardless of the current bank rates. One advantage of paying fixed interest is that you know how much to allocate for your loan payment every month. Another advantage is that when bank rates go up, your loan payment remains the same.
Personal loans are a quick option when you are on a tight fix, but some lenders charge fees. Read well the terms and conditions before signing up. Some financing companies charge as high as 8% of the loan amount for processing alone. Check for penalties for advanced or delayed payments. When you add up the fees, you can come up with a considerable amount of money.
To reduce costs of fees, compare the amount that the lender charges for processing your application. Make sure that there is no penalty in paying your debt in advance. Most creditors prefer that you follow the repayment schedule diligently.
Repayment terms among lending companies vary. If you opt for a short term loan, you will pay a big amount, but in the long run, you will be paying less interest. A long term repayment would allow you to pay a less monthly payment, but when you sum up the interest you paid, the amount is far bigger than what you paid for a short-term loan.
Some lenders would not allow you to make an advance payment. If you think you would be free from debt, check first if there is a penalty and how much.
You Can Borrow More
Many people think that personal loans are only for borrowers that need a small amount of money. However, you can borrow more than you think depending on your credit score. Some lenders can grant you $50,000 maximum if you have an excellent credit score and a low debt-income ratio. You would also enjoy low interest and easy repayment schemes.
When you apply for a loan, most banks and lending institutions would ask you the purpose of the loan, which you will not experience when taking a personal loan.
However, using the money for unnecessary things or a luxurious lifestyle is not a good way to spend what you borrowed. Why not use it to pay off old debt, to survive while in between jobs, or to have your house or car repair? Dong these things will put on more sense on why you borrowed money.
Make sure that when you use the money to pay for old loans, the cost of the new loan will be less than the old loan. If the new debt costs more, it will be better to keep paying the old debt that getting a new one to pay for it.
Getting a personal loan is fast and easy but may cost more than a traditional loan. Make sure that the money that you borrowed will be put into good use to commensurate for the high-interest rate that you must pay.