24 Mar 5 things to consider when getting a personal loan
People apply for loans for various reasons. Some may need it for making purchases, from buying phones or laptops to bigger purchases for cars or real estate. Some people take out loans to fund their education or their children’s education, for weddings and also vacations. Personal loans are also very useful in the event of emergencies, such as any medical emergencies that may incur a high cost in a short span of time.
Taking out a loan requires a big commitment from an applicant as it has to be paid back in full. Here are five things to consider before committing to applying for a personal loan:
Before applying for a personal loan, you must first evaluate your financial situation. Ensure that you currently have a stable income or a source of income that can be used for repayment.
Prior to taking out a loan, you should first ask yourself the goals you wish to achieve with this sum of money. Having a clear goal in mind helps you to decide on the kind of loan you need, this includes the sum of money that you wish to borrow, the term (duration) for repayment and the basis of repayment be it weekly, monthly or yearly.
Essentially, taking out a loan should help you make the first step into taking control of your financial situation. In the event that you are using a personal loan to pay off consolidated debts such as credit card and utility bills, it is pivotal that you will not end up with more debt after clearing up the initial ones. That is why you must first consider your ability to pay off a loan before applying for one.
A personal loan is often an unsecured loan. This means that unlike a secured loan which requires an applicant to pledge their assets (such as a house or car) as collateral, an unsecured loan allows applicants to take out the loan without having to pledge anything, this is why the interest rate for an unsecured loan is set at a much higher percentage.
Take note that interest rates are set according to applicant criteria. Some factors that go in to determining the interest rate of a personal loan are:
- Employment status: This includes the type of company or organization you are employed by. Applicants who are working for established companies may enjoy lower interest rates, the same can be said for individuals who are full time employees. On paper, these applicants are in a better position to fully repay loans in a timely manner. Part-time workers, commission earners and freelancers may find it harder to apply for loans and may be charged with higher interest rates, nonetheless if they can proof via their bank statements that they are able to generate a healthy source of income, it is still possible to secure a loan with reasonable interest rates.
- Credit score: When it comes to taking out a loan, credibility is an important factor that contributes to the success of securing a loan with a good interest rate. Your credit score essentially paints a picture of the health of your financial life, a good credit score will mean that applicants have a history of repaying loans and other financial commitments on time, this will then give lenders the confidence to issue loans to successful applicants.
- Age of applicant: Age is also factor when it comes to setting the interest rate of a loan. An applicant who is close to the retirement age may be charged a higher interest rate in comparison to a full-time worker who is halfway through his or her career.
These factors are essentially ways in which lenders provide security for themselves when giving out unsecured loans to decrease the risk of late and non-payment.
Before committing to a loan, take the time to fully understand the interest rate imposed on the personal loan. Ensure that the interest rate is something you can afford to repay and not something that will overburden you instead.
Personal loans are subjected to different repayment schemes depending on the lender’s policy in addition to the applicant’s ability.
People often apply for loans when they are in need of a lump sum of money, the benefits of loans is that you are able to pay it off using installments which significantly lessens the burden of the applicant.
Personal loans are subjected to a monthly repayment scheme for a set period of time. Applicants are usually given a term (duration) of a few years to repay the loan with interest.
Do note however that although a shorter repayment term means a bigger commitment each month, a longer repayment term will incur a higher interest rate leading to a higher overall repayment cost.
Fees and charges
When applying for a loan, it is necessary to take note of any additional charges that may be imposed on the loan. These charges may include loan processing fees, late payment charges, loan cancellation charges and etcetera.
It is necessary to get the full run down on any additional charges that will be charged along with the personal loan to ensure that applicants will not overlook and be burdened by these charges.
Personal loans are widely available on the market, be it through banks and also established money lending organizations. People who are interested in taking out loans have the responsibility of doing prior research into the organizations that offer these loans. As different organizations will have their own loan packages on offer, applicants must make informed decisions and apply for the loan that best suit their needs and financial situation.
The decision to take out a personal loan is not one that should be taken lightly. With sufficient research and good planning, a personal loan can be a life saver and will ultimately help you gain control of your financial life. That is why it is important for you to get in contact with a trusted and certified money lender to provide you with the best service and advice when you are ready to apply for a personal loan.