Taking out a personal loan can be such a dangerous endeavor. The worst thing would be falling into costly traps especially when you are taking an unsecured personal loan. Even though unsecured loans are the simplest, the lenders still strive to squeeze in extra ways to get more money from you.
Personal loans come in handy when you want to consolidate a debt or fund a large expense. You can use personal loans for almost anything you want, including home renovations or a big wedding. However, most lenders don’t allow you to use the loan for other expenses such as education.
However, since personal loans are debts that are unsecured, you can take out a loan without giving any of your property as collateral. That’s the difference from the secured debt, like a car loan. With a secured loan, the lender can seize your car or property or recoup the money. If you fall behind on the payments.
On the other hand, personal loans have greater interest compared to secured loans because they have no guarantee or collateral behind them. However, compared to credit cards, personal loans offer better interest rates.
When Do You Use Personal Loans?
Personal loans are still a form of a debt even though they have lower interest rates compared to credit cards, meaning you should use them carefully.
Always consider what you want to use the loan for to avoid falling into an unnecessary trap. For example, borrowing money to pay for a big purchase or go for a luxurious vacation can be such a costly mistake. If its something that can wait, consider saving for the expense while you delay it. If you have a credit card debt with high interest, personal loans can be of great help.
Most people use personal loans to consolidate their debts. This is a good idea especially if you use it to manage their credit card debt. Instead of debt consolidation, you can use the personal loan to save money and pay off the debts.
You take out a personal loan for your credit card debt amount and use the loan to pay off the balance. This means that you’ll have just one easy payment for the personal loan rather than making payments on the credit card. Consolidating your credit card loan is possibly one of the reasons to consider taking out a personal loan.
However, even though a personal loan can be a good idea for catering for expenses and debt consolidation, it is important to understand why and how you accumulated debt. Whether it was a sudden emergency, or an income issue, or a spending issue, you need to know the root of the problem. You can also identify the cause by tracking your expenses and income and then find a means of ending the debt cycle.
How Do You Take Out A Personal Loan?
After making all the logical considerations and you decide to take out a personal loan, you will have to go through crucial application steps.
The most crucial step is to first check your credit score. As part of your application system, most lenders prefer to look at your credit history as part of your application. In this case, the lower the interest rate on the personal loan, the better your credit score. To also avoid unnecessary surprises in the future, you also need to know your score ahead of time will.
Also, take your time to compare lenders. Before taking out a personal loan, draft a list of lenders that are will to offer you personal loans. If possible, always get an estimate from the lenders to find out your possible repayments terms and what interest rate you qualify for. Looking at multiple lenders will also pave the way for you to get the best deal.
It is also important to collect all the necessary documents before you consider starting the loan application process. Most lenders ask for documentation of your monthly or gross income, your social number security, and your driver’s license number.
With all the documentation ready, go ahead and complete the application. You can get the lenders who will allow you to complete the application process online. However, if you prefer to do it old school, you can also visit your credit union or the local bank in person to apply for the personal loan. Whichever process you choose, the lender will always take you through the application process.
The final step includes receiving a decision. In most cases, some lenders will give you a decision within minutes. You can receive the money in just a few days if you accept the loan.
Final Verdict
Personal loans are highly appealing because they offer you a low-interest rate that allows you to make a big purchase. However, a personal loan is still a debt, so if you have other alternatives like borrowing from friends and family, go for it!
However, banks are very particular when it comes to giving out loans. You will find out that they will ask so many follow up questions to find out what you need the money for and if there is any assurance of whether you will pay back.
They may even go a step further to find out whether you have any history of gambling and unpaid loans. So if you have legal issues, you may want to check out grapeleafcapital, get the help you need before you go asking for a personal loan. Invest the money you get from a personal loan, to invest in a business. Make sure that whatever you use the money for, the money has a chance of coming back full fold.