You may be planning on a new car in the New Year, or maybe some home improvements. Well, if you are, these tips will help you when applying for a personal loan and to ensure the loan you get is the best for you.
Tips For Applying For A Personal Loan
1) Get The Deal That’s Right For You
Personal loans end up being used to meet many different needs by borrowers. You might be trying to consolidate debts on multiple credit cards, start a home improvement project, build capital for your business, or just take a vacation.
Before you make any commitments, make sure you’re looking at the right kind of credit. Depending on your circumstances, you might be served better by a line of credit or a home equity loan. Because your home serves as security on such a credit line or loan, you’re likely to get a better interest rate than you would from an unsecured personal loan.
2) Use A Trustworthy Lender
There are many financial institutions in the personal loan business. Examples include banks, online lenders, and credit unions.
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Terms, conditions, and interest rates are going to vary from lender to lender. This makes it important for you to shop around before making a final decision.
As an example of the kind of interest rate variations you face, consider these averages provided by Perc Pineda. (Pineda is the Credit Union National Association’s senior economist.) A two-year personal loan for $5,000 comes with a 9.93% interest rate at banks, while the same loan has a rate of 9.54% at credit unions.
3) Exercise Caution When Consolidating Debt
Personal loans are frequently used to consolidate debt (especially credit card debt) by converting multiple monthly payments into a single payment. Consumers find it especially useful to pay off their credit cards this way.
If this is your goal in taking out a loan, get the most out of your efforts by exercising all possible restraint with your credit cards after they’re paid off. Don’t accumulate fresh debt on top of the amount you owe to your new lender!
4) Review All Offers Thoroughly
You should always ask explicitly for a full disclosure of terms and conditions before signing for a loan. Take the time to read the fine print provided by your potential lender. Note that you’ll find many subtle differences in the conditions offered by different lenders.
Examine the monthly payment structure in detail to confirm that it meets your needs. Check the fees and penalties involved for late payments. Bear in mind that your lender’s ideal repayment scenario involves a continuous stream of consistent payments; you may face penalties for attempting to pay the loan off early as well as for missing payments.
5) Verify The Accuracy Of Your Credit Score
Your individual credit history is going to play a huge role in the interest rate lenders charge you on a personal loan. This figure can have a larger impact than overall interest rate trends. Bad credit may well double the amount of interest a lender wants to charge you for your loan.
Check your credit score before you start shopping for personal loan offers to confirm that it’s accurate. If your credit history isn’t as healthy as you want it to be, talk to you lender and ask them to report your on-time repayments in order to strengthen your credit score.
6) Check For Origination Fees
Personal lending is a competitive business, and lenders know that advertising low rates will attract borrowers. Be aware that many lenders charge “origination fees” on loans that they advertise with deceptively low rates, effectively boosting the overall cost of the loan. Your best deal might be with a lender whose advertised rates are higher as long as they don’t charge origination fees.
7) Fit Your Loan To Your Financial Capabilities
Assess your personal finances realistically and determine how much debt you can afford before you go shopping for personal loans. Lenders who are set up to make higher profits off of borrowers who fail to repay their loans promptly will be happy to set you up with a loan you can’t really afford. You have to be responsible about how much credit you apply for. This article has some good details on the best ways to ensure you’re not over-reaching.
8) Exercise Caution With Automatic Withdrawals
Some lenders want to automatically withdraw monthly repayments directly from your bank account. They’ll offer you incentives to set these arrangements up; this is especially popular with online lenders.
Review the terms of your loan carefully. Some lenders actually make automatic withdrawals the default and charge you extra if you want to make your payments via check. Remember that giving your lender access to your account may leave you short of money if you don’t plan those automatic payments carefully.
9) Consider Repayment Difficulties
Don’t wait until you’re facing a financial crisis to find out what will happen with your personal loan. Inquire about possible future modifications to your loan terms before you sign for it. Also, how will your lender handle matters if you have trouble meeting your obligations? Can potential differences be settled in court, or is the lender open to arbitration?
10) Do You Want A Fixed Or A Variable Rate?
Most lenders offer you a choice between fixed and variable interest rates. Variable rates are lower when you sign for your loan, but they offer risk and uncertainty about your future interest obligations. Fixed rates are going to be higher, but they are “locked in” for the duration of your loan.