Obtaining a personal loan is a great way to pay off other
debts, afford a vacation, pay for a college course, or pay for anything else
that has become a financial issue for you. While personal loans are easy to
obtain, there are many things borrowers need to consider before accepting the
terms of a personal loan. Too often, borrowers are in a hurry for fast money
and accept the first personal loan they are offered. The result is suffering
with the consequences of that poor choice for the term of the loan.
The first order of business is to realize that there are two
types of personal loans, unsecured and secured. Secured loans are available to
individuals with poor credit or no credit. This type of loan requires you to
put up collateral in the event you default on the loan terms. Unsecured loans
are offered to those who have good credit and a solid income. There is no
collateral involved, but the lender will take you to court if you default on
the loan terms.
All loans have an Average Percentage Rate, known as APR.
Most people think all APR does is affect your interest rate. However, it also
shows the lending fees, set up costs, and any other hidden fees of the loan.
Each fee has to be itemized and identified by order of the Federal Trade
Commission. This is the best method for determining the true cost of a loan.
Therefore, it makes the perfect tool for comparing personal loan offers to find
which one really is offering you the best deal.
Carefully consider the amount of money you need to borrow.
Make sure you can afford the monthly payment on a regular basis. Most lenders
will approve your loan amount for more than you need to entice you to borrow
more. This way, they will earn more money from you in interest over the life of
the loan. It can be tempting to take what is on the table, but remember that it
isn’t free cash. This is money you are responsible to repay. If you have a
secured loan you will need to remember that your assets are tied up in that loan
as well.
While it is recommended to repay a personal loan as quickly
as possible to save interest fees and establish good credit, make sure you
thoroughly read all the terms of the loan. Do not accept one that will charge
you fees or penalties for early payoff of the loan.
Your credit rating will follow you for the rest of your
life. It can be a blessing or it can haunt you depending on how you run your
affairs. Be prepared for the unexpected to help you repay your personal loan.
There is insurance you can take out that will cover your monthly payments if
you lose your job or can’t work due to an injury. This is worth looking in to.
If you find yourself unable to make a personal loan payment,
contact the lender. They will do all they can to work with you. They want to
get the money back and keep you from getting a bad credit rating. Hiding from
creditors or ignoring letters from them is the wrong thing to do in such a
situation. Accept responsibility and see what can be done.
Personal loans are a great source of funds when you need
them. Take the time to comparison shop, only borrow what you need to, make your
payments on time, and let your creditors know of any situations that arise.
Following these tips will ensure your personal loan transactions go smoothly
and that your credit is not damaged.
If you have questions about personal loans, the internet is
a great source of information. You can also contact a lending institution for
brochures or a one on one discussion. It is in your best interest to have all
the facts beforehand.