Most people apply for personal loans to meet their urgent needs or expenses. Taking out a personal loan can be a big decision to make since its repayments impact your monthly cash flow. It’s important that you are well informed about personal loans to increase the chances of your application being successful and at a low interest rate.
If you are weighing the option of applying for a personal loan to improve your finances and fund your needs, there are a few crucial tips that you should consider.
1. Compare interest rates
A personal loan is an unsecured loan that you take from credit unions, online lenders, or banks. This type of loan comes at a high interest rate compared to the other types of loans since no collateral is required. The interest rate charged varies from one institution to another. The question that most people ask is: are credit unions better than banks?
Credit unions are better than banks when it comes to personal loans. This is because credit unions offer lower fees and charge lower loan rates compared to banks. Go for the low-interest rate option as even a slight interest rate difference can significantly affect the total loan interest amount.
2. Only take a loan when necessary
Before applying for a personal loan, assess your needs and existing assessments thoroughly. This loan attracts high interest rates and should only be considered when it is indispensable. This loan will not only help you meet those short-term financial goals but will also mean that you will have an additional repayment commitment for a given period. Ensure that you are financially able to meet the monthly repayments without fail before applying for that personal loan.
3. Make timely payments
Every loan comes with a commitment to make timely repayments diligently for the agreed period. This amount should sit comfortably in your budget. Late payments will not only result in penalties, but will also impact your credit score negatively. A good repayment score and credit history are crucial when acquiring more credit or loans in the future.
4. Review interest rates
The type of loan you borrow determines the interest rate charged. Personal loans generally have high interest rates since there is no collateral taken as a guarantee. Ideally, you want to choose a personal loan that can offer the lowest possible interest rate to make EMI repayment on your loan easier. Take your time and compare several financial institutions for the lowest interest rates on loans.
5. Keep the tenure short
Do not be tempted to take a long-term personal loan even if they market the low EMI to you. The longer the repayment period, the more the total compound interest amount you will pay. Keep your loan tenure as short as possible.
6. Check for hidden charges
Some institutions are not very straightforward, hiding some charges in the finer details of the loan application. Watch out for any additional fees associated with your personal loan. This is because if there are other charges associated with the personal loan, you will not only pay for the loan amount along with interest.
You will also pay other additional charges like processing fees, loan insurance, and payment penalties. It would help if you asked about the additional costs associated with the loan to make an informed decision.
Before filling a personal loan form, remember that loans are structured to favor the lender and not the borrower. Lenders have made it pretty easy to get a personal loan these days, but if you do not take time to do some proper research on the loan terms and evaluate your current financial position, you might find yourself in some deep financial trouble.