Nine Things You Should Know Before Applying For A Personal Loan

July 14, 2015

Loans

source: ringlinglibguides

If you need a personal loan, the chances are you are not as financially stable as you would like. It doesn’t mean that you are bankrupt or that you are poor. It just means you need a little extra help, and there is nothing wrong with that. But, personal loans from external sources are not without risk so there are a few things you should be aware of first. Only then can you make an informed decision. Take a look at some of the tips below to ensure you are ready for a personal loan.

Know Your Credit Score

If you try to pretend that your credit score is not what it is, you will find yourself in a tricky situation. That situation will be that the bank will refuse you a loan. There is no worse feeling than going through the whole complicated process, only for the bank to say they cannot lend you the money. Be open from the start, tell your potential provider your credit score and take it from there.

Check Your Credit Reports

Your credit score is based on a credit report. From that report, the lenders will make a decision about your ability to pay the money back. So, you don’t want to take your credit reports for granted because there is always the chance that they are incorrect. Pull your reports and check them for errors and you have a far better chance of getting the terms and conditions that you want, or at least more favorable terms than you would have had previously.

Shop Around

Banks are the best source of credit for most people because they are the most credible, but they are not the only source available. In fact, because of their strict rules and regulations they are remarkably exclusive. There are always alternatives, for example, you can check out companies like Cashflow, all you have to do is visit the Cashfloat website for more information. Or, go to your local Credit Union. Credit Unions are like banks, but they are more affordable and offer smaller loans that might suit your needs better. Also, you are more likely to get a better deal if you shop around.

Know The Fees

Almost all personal loans have additional fees besides interest and repayments. These fees can be very high and can cost you a lot of cash if you don’t know about them. They are known as hidden fees, and you need to look out for them before you sign the contract. You need to make sure you know the true amount of the loan so that you know what you can afford and then compare it to other alternatives.

Figure Out What You Can Afford

Yes, you might be in a tight spot, but a loan will make it even worse if you cannot afford the repayments. It will only make your debt bigger and make getting out from underneath it a lot harder. It is a horrific place to find yourself because it can suffocate you and make you take drastic measures that you would never take otherwise. Once you have determined your monthly amount, try and set an agreement with the lender to make sure you never miss a repayment.

Type Of Interest Rate

Knowing the type of interest rate and how it can affect you is important because interest rates are a huge part of a personal loan. There are two types of interest: fixed and variable. Fixed tend to be more expensive, but the monthly repayments never fluctuate. A varied rate, however, does vary depending on the financial situation at that time. If you want to take a risk, varied rates can be cheaper but they can also be higher in the long run. Decide on which rate is best for you.

Payment Protection

Do you need loan insurance? If you can’t make the repayments for any reason, the insurance will pay it for you, just like any other type of insurance. However, like every other type of insurance there is a charge for the service. As you have gathered by now, the extra cost adds to the amount of the loan and that makes it more expensive. But, if you are in a certain financial situation and desperately need the money, insurance is a good thing. It is a hard decision to make, but one you need to make before you apply for a loan. Also, don’t just assume that your lender offers the best price on insurance so shop around for any cheaper quotes.

Unsecured vs. Secured

If you are in need of a loan at any cost, you can always secure the loan against an asset that the lender will take as collateral. So, say you own your home, the bank, or whoever you lend money off, will take your home if you default on the payments. It sounds like a stupid idea, doesn’t it? But, in reality it is the only option some people have if they want favorable loan term and conditions. Unsecured loans are by no means impossible to agree, but they are much less attractive because of the stipulations the lender will insist on. They do not want to take the risk of losing everything without getting something back from you.

Double Check Your Documents

You might have everything that the lender requires and still get refused a loan. Why? Because you didn’t fill in the documents fully! Honestly, something as innocuous as not filling in a required field on a form is enough for a lender to refuse. All you have to do is check your forms once you have filled them in and then check them again. And once you have checked them, get a friend to give them a lookover.

There is a lot to take in, but it is crucial that you research every avenue and possibility because a personal loan can be a life changer. If you get it wrong, you will have to spend a long time trying to recover, and no one wants that.

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Personal Loan