Put the same amount of research towards a personal loan that you would towards any other purchase you make. So it is important that your personal loan suits you and to avoid confusion ask yourself the following ten questions when making obtaining a personal loan.
Maybe you need it for an emergency purchase of other important things.
Firstly outline why you are getting this personal loan and iron out the details such as how much you will need and whether you need a loan or not.
Lenders will question you about how you will use these funds, and you have to answer honestly.
Although mostly the reason for getting a personal loan has little to no bearing on whether or not you get the loans, some lenders restrict how the loans can be used such as Payoff which only gives out personal loans to assist people in clearing credit card debt.
List out the costs you need to cover with your personal loan and restrict the amount you have loaned to that amount.
Do not increase your loan by a further 5000 dollars simply because you want more cash on hand. This may cause your loan to become more expensive and can lead to an increased chance of default.
When you know how much money you require it will be easy for you to choose a lender since most lenders set maximum and minimum limits for a personal loan.
There are companies which offer low loans as well as large loans like Upstart and Avant giving loans as low as 1000 dollars or SoFi which provide loans as big as 100,000 dollars.
When you understand how much you need to get a loan you also need to decide how much of a loan you can repay.
Always remember that the greater the amount of money you have borrowed, the higher the monthly payments will be and also the more will have to be paid as interest.
The following points are how to obtain a personal loan that you can afford.
- Review budget and the cash you get each month.
- See how much money you have left at the end of the month after paying off all your bills.
- Calculate how much you can shift towards your payments on your loans.
- Search for places where you could lower costs and make space in your budget.
- Also, evaluate how much you really need a loan as opposed to other financial responsibilities and goals.
- Weigh your other requirements and expenses against whether or not you need a personal loan and identify which one takes priority.
The personal loan repayment term is the period for which you will be paying your debt. These can range from one year to up to ten years.
If your priority is to keep your spending low, then you should get a loan with a smaller term since loans with smaller terms lead to you paying lesser interest and thus reduce your debt as fast as possible. Loans with shorter terms also have smaller interest rates.
Make sure also to see that your costs per month are affordable. Since the length of your personal loan also affects the amount you will be paying per month you will want to choose a loan term that makes payments affordable.
Taking an example, let’s say you borrow 10,000 dollars with an interest rate of 8% and your loan term is five years. You will end up with a payment of 203 dollars a month.
However, if you repay the 10,000 dollars with 6 percent interest rate, then you will pay 304 dollars a month. While the payments per month are higher the lower interest and the shorter term will save 1,214 dollars in interest costs.
However, before applying for a personal loan first, you must know your credit score. This information will help you decide the best lender at the best interest with credit guidelines that are matched by your credit history.
The following things are what must be remembered with regards to credit score and loans:
- With a credit score below 580, it is unlikely that you will be unlikely to get a personal loan. So you might need to look into other options like getting a cosigner or getting a secured loan.
- With a credit score between 580 and 680,e. an average credit score, you must be careful about choosing your lender. In this case, apply for a personal loan for fair credit, and this can increase your chances of being approved.
- With a credit score of above 680, you have excellent credit, and this will give you the greatest chances of being approved for a personal loan. This will also give you lower interest rates.
Always check the credit score requirements because this will help you know if you qualify and know your requirement from lenders.
A major point of consideration is whether or not you need a co-signer for your application.
A co-signer is a person who applies for the loan with you, and they agree to take responsibility for the loan if you cannot make payments.
Several people apply with co-signers because it increases chances of approval since a cosigner with a better credit can increase chances of approval and get a better interest rate.
However, not all lenders allow co-signers on loan so when applying for a loan choose a lender which allows a co-signer for example, Earnest.
Unsecured loans are the most common personal loans. They are loans which are borrowed all together, collateral is not given, and they are paid in instalments over a long period.
Some other options related to personal loans you should consider are:
- Secured personal loans which require collateral like auto equity or savings accounts.
- Fixed-rate loans which keep the interest rate throughout the loan term constant.
- Variable- rate loans which initially have low rates but the lender does have the option to increase them later on.
- Peer-to-peer personal loans which are financed by investors and have smaller interest rates of separate requirements for eligibility.
All of these different types of personal loans have different types of advantages and disadvantages, and different lenders offer different types of loans. Before choosing your loans evaluate all the options to make an informed decision.
When searching for a personal loan be sure to compare different interest rates and this will help you save on costs.
Alternatively, with a good credit and other positive aspects of your financial situation like low debt and high income you would get the best interest rates like SoFi which offers its lowest interest rates at 5.19%.
However, even if your credit is not perfect always browse the market, it helps to get rate estimates from lenders and compare them.
Besides interest rates identify the other amounts, you will be paying and compare them to see what is the best deal.
For example, origination fees, which are usually from 1 to 6 percent of the total loan amount. Thus one should be careful in comparing loans since even if a loan has low interest but a high origination rate it is probably not the best.
Along with that lenders usually, remove the origination fees from the loan amount before the funds are disbursed and thus the amount requested should be enough to cover any other costs.
Most importantly choose lenders who will give you good service, make sure to check their reviews by other customers since these tell you how well they treat customers and about their history as a personal loan company.
Reviewers often list their credit history and whether or not they were approved since it will tell you about the type of people these companies would work with.
The following are warning signs that you should watch out for, in order to avoid shady lenders:
- Lack of credit check loans
- Several hidden costs and fees
- Sign-ups which are high pressure
When you are getting a personal loan, it can be very easy for people not to remember how difficult it will be to repay these loans. So it is important to browse all the lenders and options and choose a personal loan after a lot of research. Finding a good deal on your loan is important since you could be involved with that loan company for a very long time.