Getting a personal loan is sometimes the only option for people who need money fast. While it can be a great way to get money quickly, personal loans are not meant to be used frivolously. Here are some dos and don’ts for getting a personal loan:
Don’t Over-borrow
You mustn’t borrow more than you can afford. Your ability to repay a loan depends on your income and credit history, which means that the amount you can borrow will vary from lender to lender.
To calculate how much you can borrow, lenders will take into account:
- The amount of money they are lending;
- The interest rate charged; and
- How much of the original loan is still outstanding after one year (called ‘revolving debt’).
Do Consider a Personal Loan to Consolidate Debt
A personal loan can help consolidate debts and lower the interest rate on each of your debts if you have multiple debts. This can save you money in the long run and reduce your monthly payments.
A personal loan may also be used to pay off credit card debt with a higher interest rate than what banks or other lenders offer.
Don’t Use a Personal Loan for Something That Is Depreciating in Value
Personal loans are meant for investment, not consumption. Therefore, before applying for your personal loan, ensure that the money you’re borrowing won’t go into buying a depreciating asset like a car or home appliance. As per the experts at Lantern by SoFi, “Many people take out personal loans to make a large purchase, pay off medical bills, or consolidate debt.”
Do Pay Attention to the Interest Rate and Terms of the Loan
When taking out a personal loan, it is important to pay attention to the interest rate and terms of the loan. Interest rates can be a big factor in the affordability of a loan. Additionally, different personal loans have different interest rates and terms; some may have fixed rates that remain the same for set periods or even for life, while others may have variable rates that can change over time depending on market conditions.
Don’t Forget About Fees
Fees are charged for various reasons, such as for processing your application, for late payments, paying by phone, and for paying by mail. You should also know that fees typically apply when you add a cosigner or pay with a credit card.
Do shop around for the best personal loan rate
When applying for a personal loan, it is important to note that the interest rate quoted is just one element of the overall package. Other factors such as fees and charges are often overlooked. Be sure to compare all these costs before deciding which lender you should approach.
The bottom line is that personal loans are a great way to borrow money for your financial needs. You can get cash quickly and reasonably, but you should understand the potential risks. If you take steps to make sure you can afford the loan payments, then getting one should be easy.