It’s not every day you find yourself in need of a personal loan. But, you should know what you’re getting into when the day to apply for one does come.
Personal loans are available for all sorts of amounts and at various rates. They can be one of the best financial decisions you ever make if you understand how to use them correctly.
Or, they can become your worst nightmare if you’re not careful!
The trick to success when applying for a personal loan is to think about it in terms of the long-term.
Regardless of how much money you need right now, consider how you plan to pay off this loan and what kind of interest rate you’re prepared to pay for, too.
This may sound a bit overwhelming, but it’s actually pretty easy to get a good loan and pay it off on time. As far as getting the loan goes, use the steps listed below to figure out how to take out a loan you won’t regret!
1. Research All Your Options
The first part of getting a loan you’re happy about is to understand all the lenders you have the option of working with. Take the time to weigh the pros/cons of each one and do your best not to make a rash decision.
The last thing you want is to end up in even more financial trouble just when you thought you were about to get out the mess you’re in!
Research every possible detail you can. Talk to different lenders over the phone or in person. Don’t be afraid to ask questions and be sure you clear up any details that are confusing to you.
This will get your search started in the right direction.
2. Get Pre-Qualified
While you’re making calls to different lenders and reading about various policies, take a moment to get pre-qualified for the personal loan you want to take out.
This will make the process go by much faster once it is time to submit an application. It gives you a lot more detail in regards to the kind of loan you can expect to get.
Plus, getting pre-qualified allows you to undergo a soft credit check rather than an in-depth one, which means your credit score won’t be affected.
If you already know your credit score is really low, you may want to explore other options before pursuing a personal loan. Bonsai Finance can provide a little more insight about what you can do when you need money but you have bad credit.
3. Compare Different APRs
APR stands for annual percentage rate; it’s basically the interest that your loan will accrue, which adds to the final amount you will pay off.
This is how lenders make their money. Unfortunately, it’s also how some borrowers end up in a bad situation.
The latter occurs when a borrower doesn’t understand the full terms of their loan. They may end up having to pay off more than they initially expected if they don’t factor in the interest.
Not to mention, borrowers have to choose whether they want a loan with fixed interest or variable interest. This is not a detail you can afford to overlook.
4. Take the Time to Build Your Credit
Here’s an interesting thought — what if you waited to take out a personal loan and took some time to focus on building your credit?
Not only will this improve your position overall, but it will put you in a much better position to get a good personal loan.
You don’t have to completely transform your credit score, either. Just try to bump it up 20, 50, or even 100 points if you can. You’d be surprised to see how big of a difference this can have on your loan!
5. Be Wary of Credit Consolidation
Are you actually planning to fix your credit card debt with a personal loan? While your credit score and your credit card debt are two different things, they are closely related.
Your credit score improves your chances of getting a good credit card, whereas high credit card debt makes your personal finances much harder to handle. If you have a lot to pay off on your cards, you want to be careful when it comes to consolidation.
Consolidation works best when you’re prepared to pay off a personal loan in full. You need to understand that you can’t miss a payment or default when you’re paying this off.
More so, you have to be cautious about letting your credit card debt pile up again. It makes no sense to go through the process of taking out a loan and putting your credit on the line if you’re only going to rack up debt all over again.
6. Try Not to Over-Borrow
Speaking of racking up debt, be careful of over-borrowing.
Only take out a personal loan in the amount that you absolutely need. This helps you manage all of your payments and it means you can pay off your loan in full in a shorter amount of time. Basically, it puts you in the ideal situation to succeed with your loan rather than falling into more debt.
7. Consider Getting a Cosigner
Keep in mind that you don’t have to figure out all of your finances by yourself. It might be worth reaching out to mom or dad and asking them to cosign your loan.
While this is a tough conversation for most people to have, it brings everyone a lot of peace of mind in the long-run. Having a cosigner means you have a better chance of getting a good loan with a low APR.
It also makes you accountable to stay on top of payments so that your loved one doesn’t have to pay your debt!
8. See if a Secured Loan Is Right for You
Instead of getting a cosigner, you might want to get a secured personal loan. This means you’d put an asset – like home equity or the title to a car you own – down as guarantee of payment.
It means you can get a lower interest rate on your personal loan and a higher chance of being accepted even if you have bad credit. If you default on payments, though, you risk losing your asset.
9. Read the Fine Print!
No matter what kind of loan you end up with or what amount it’s for, you absolutely have to read the fine print. This is essential to making sure you don’t end up in a bad situation.
Reading the fine print gives you the full understanding you need when it comes to details like APR, when payments are due, and what kind of liability you have if payment expectations aren’t met.
How to Take Out a Loan When Buying a House or Starting a Business
Although there are some specific aspects of taking out a personal loan, the lending process across the board is generally the same. This means you can use the steps above to figure out how to take out a loan for a house or for a startup when the time comes.
Before you get into all that, though, you should buckle down on getting your finances in order.
A personal loan can definitely help, but for more tips and tricks on how to be responsible with your money, click here.