What to Know Before Applying for Personal Loans
Are you interested in personal loans? These loans are a type of unsecured debt that you can use for various needs. Maybe you have extenuating circumstances such as high medical bills or you're trying to fund a home improvement emergency. Understand that taking on such a loan comes with a great deal of responsibility and risk. Before you take the leap to make this type of application, here are some things you should understand.
Know Your Credit Score
Do you know what your credit score is? If not, make it your mission to find out what your credit score is before applying for personal loans. According to Rocket Mortgage, 743 is the average credit score for buyers taking out a mortgage. Lenders look at your eligibility to determine whether to give you a loan as well as what type of interest rate you'll receive. In other words, the higher your credit score, the likelier you are to get a lower interest rate, which will result in smaller payments. If you have a loan that has a long repayment option at a high interest rate, you may end up spending way more money out of your pocket because you didn't have a lower credit score. Be proactive and get your regular credit report to see what your credit score is. You can always get a free credit report from creditreport.com as well as other agencies. Understanding what your credit score is before putting in a personal loan application can save you a shock and give you time to make necessary repairs to improve your score. For example, there may be some longstanding errors on your credit report that are dragging your score down. Maybe you paid off a loan or a credit card years ago, but it's still showing up on your report erroneously. Plus, if you've been a victim of identity theft, you may have things on your report you never applied for.
Compare Lenders
It’s unwise to work with the first lender you come across. Treat shopping for personal loans the way you would a car, home, or other valuable item. Lenders don't all offer the same terms and conditions. You may have different repayment terms or penalties to consider. Some have different interest rates that may be too high for you. Plus, some just may be run by unscrupulous lenders. You can compare lenders by looking at reviews and asking people who may have used that particular company. There are other online tools that help you compare different lenders when it comes to their interest rates, loan amounts, and more. If you want to know more about our options and why they will be the right fit for you, give us a call today!
Read Everything
Never sign a personal loan document without reviewing everything thoroughly. These applications and contracts often have fine print that you should look over more than one time. If you're unsure of what something says, don't be afraid to get professional advice or clarification. After all, this is a major financial transaction that could have major consequences if you don't understand what your obligation is. Understand what the terms and conditions are, the repayment period, fees, interest rates, penalties for default, monthly payments, and so on. If they're a reputable lender, they shouldn't hesitate to make you feel comfortable and explain everything to you thoroughly. Ask as many questions as you need. If the lender hesitates to answer those questions, it's best to move on to a different source.
Be Aware of the Amount You Receive
A personal loan is a major responsibility. Just like with a mortgage or car loan, don't take out more than what you can repay. For example, if they offer you a personal loan for $100,000, but you know you could only pay back $20,000, then make sure that you get the lower amount that you can manage. It's very tempting to have access to that amount of cash without collateral, but it could cause you more problems in the long run if you don't understand how to manage it. Regardless of how good your credit score was before applying for the loan, it could take a major hit if you don't end up paying your loan back. Before you make the final decision, have an honest assessment of your regular income, expenses, budget, and what you can afford to pay back monthly. Don’t put yourself in a spin cycle of applying for more than one personal loan in order to have one loan to pay back another one.
Have a Plan
What exactly do you need your personal loans for? A personal unsecured loan can be used for whatever you like, but you're still obligated to pay it back. If you're just applying for one to have extra cash in your pocket, you may inadvertently put yourself in a financial bind. It's best to only use a loan for a specific reason, such as to consolidate debt, pay medical bills, or make an emergency upgrade, such as repairing floors after a flood. You may want a personal loan because you didn't qualify for a business loan and you want to take your side hustle to the next level. You'll want to sit down and write out an exact plan that you're going to use your personal loan for, as it can also help you take the right steps to pay it back.
Monitor Your Report
Ideally, you took the right step and checked your credit report before applying for your personal loans. Don't forget about monitoring your credit report and score after you get the loan. Make sure that any payments you make are being accounted for on your credit report. If you fall into a situation where you miss payments or have too many late ones, it can cause your credit score to decrease rapidly. By paying attention to your credit report, you'll have a reminder of your financial responsibility to pay off your personal loan and how it can continue to affect you.
Understand Default
Loan default is a serious matter. If you default on a loan, that means you've failed to pay the loan back as agreed upon. Not paying back personal loans could be devastating for your financial health. After all, the lender will go through any method to get its money back in some way or form. They may charge you late fees or send your account to a collection agency. Depending on the amount, they may even sue you for the balance and perhaps garnish your wages. Do you plan on being a homeowner? Having a default loan on your record can make it hard or impossible for you to get a mortgage.
Make Extra Payments
Did you know you could pay your loan back early? Doing so could be one of the best things that you can do for your peace of mind and financial health. If you can, make extra payments so you can pay your loan off early. Always review your loan to see if anything has changed regarding loan terms, fees, or interest rates. Double-check if there are any early payment penalties to consider.
Are you in a financial bind? Personal loans are an unsecured option you can consider. Understand that personal loans aren't free money as they still come with the same financial obligation as a mortgage, educational loan, credit card, and so on. If you use a personal loan irresponsibly and take out more than you can afford, it can have devastating consequences for your future. That's why it's important to work with a reputable personal loan lender who’ll make sure you understand what goes into this type of service. If you need a loan, contact our team at Capital Bank today for a consultation.