There are many reasons why someone may be interested in a personal loan. They can be a great choice if you need cash fast and are not sure where to turn. You can use them for a range of things, including paying for a vacation, moving costs, or consolidating credit card debt.
If you have existing debt, taking on an additional expense may make you uneasy, but it is often the first step to gaining control of your finances.
Benefits Over Charging the Expense
If you need to spend money on something like a home remodeling project or to replace aging appliances, you may consider putting the expense on your credit card. Charging the expense is easy, you simply pull out your card, and everything is taken care of. Of course, once you start making payments on this expense, you may be less than happy with your decision.
Credit cards often have a high-interest rate. Another drawback of putting large expenses on your credit cards is that it raises your credit utilization, which will lower your credit score. It also ties up a large percentage of your available credit.
Will You Qualify?
If it sounds like a personal loan is a good fit for your situation, your next consideration is whether you qualify. The good news is that there is probably a product available that will meet your needs.
If you have a good credit score with a decent credit history, you will qualify for better terms and have more choices when making your decision. Folks with a lower credit score or a short credit history may not have as many options.
In addition to your credit history, the lender will want to know your income and your repayment history. If you have a lower income, you will qualify for a lower amount than someone with a higher income, even if your credit score is solid.
Repayment history is important as well. This shows the lender that you have a history of repaying your debts.
What to Look for in a Loan
Once you decide to move forward, you want to make a choice that strengthens your financial picture. There are various things you should check before committing to a particular offering.
You need to know the interest rate as well as the length of the repayment plan. Ask if there are any prepayment penalties. The repayment length can be anywhere from six months to seven years, depending on the amount you borrow and your financial situation.
The longer the term, the more interest you will pay. You should also consider how you want to receive the money. You are often given the choice between receiving the money yourself, which you then use as needed, or having the lender pay the expenses you are borrowing for directly. Finally, ask about any fees included in the borrowing process.
The lender may charge a fee equal to a certain percentage of the amount you borrow. It is important to consider this potential cost before deciding if the loan is the right one for you.