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A personal loan is a form of credit used for personal reasons such as financing a holiday or renovating your home, which can come from credit unions, online lenders and banks.
If it is your first time applying for a personal loan, here are five things to consider.
1. Check your ability to pay back the money
Before getting the loan, know how you are going to pay it back as lenders aren’t going to give loans to borrowers who cannot pay it back. Lenders always do due diligence on you so it’s wise to run your numbers and ensure your processes work.
a) Determine the loan requirements
Why do you need the loan? How much money do you need?
These are important things to keep in mind to ensure you get enough money for your project or bill. Some lenders, like banks, also collect a deduction from your loan proceedings as an original fee, incorporating this will give you an estimation of the money you might be eligible to receive.
b) Use a personal loan calculator
Personal loan calculators can help you see if you can afford the loan or not and determine the amount of money you will be paying monthly. It’s easy to calculate your monthly payments when you know the repayment terms and the rates related to the kind of loan you are taking out.
2. Credit scores
Some lenders may run credit checks to determine the likelihood of you being able to repay the loan while other online lenders may use credit data from different sources to check your credit scores. Credit scores generally range between excellent, good, fair and poor. Excellent and good scores can lend you to better interest rates while it may be more difficult to get approved for a loan when your credit score reads poorly.
If you have a low credit score, look for ways to improve your credit scores before applying. It’s worth making the effort to enhance your credibility as a low credit score may increase the fees and interest rates.
3. Consider your collateral
When getting secured loans collateral might be a requirement, this might be money in your savings account, certificate of deposits, your vehicle or your home. Secured loans work by the lender taking the collateral when you fail to repay the loan.
Where you apply for the loan is also something to consider as it may be harder to get approval in banks with bad credit, while some online lenders are more flexible with borrowers with bad credit.
4. Choose the type of loan
You can either get a flexible or fixed lender, flexible lenders allow you to get the loan for any personal reason while some lenders will enable you to use the funds for business purposes.
Below are the different types of loans you can borrow.
Credit card refinancing loans – If you’re looking forward to clearing your credit card, look for a lender providing these consolidation loans. Getting a personal loan to pay off your credit card is a good idea when it comes to interest rates and easier management of debt.
Debt consolidation loans – Most people apply for a personal loan for debt consolidation, this is a single loan taken out to pay off other loans that you may have. Paying your debt decreases the number of payments you have in a month and reduces your worries.
Personal loan – A personal loan may reduce the financial burden when you cannot pay for unexpected costs or have impending payments. This includes medical bills, wedding payments, home improvement projects and access to emergency cash.
5. Choose the best lender
Due diligence is required to select the best lender in the market, ensure the process of application is seamless since most online loan applications are processed over a secured online platform.
You can prepare the necessary documents needed for approval beforehand such as your contact details, the reason you are taking the loan, employment details and income information.