Personal Loans are a tried and true method for getting cash quickly for an expected or unexpected situation. Compared to credit cards with their higher interest rates, personal loans often feature lower interest rates. Before taking out a personal loan, there are a few key points to consider.
What’s my credit score?
As with any financial application process, your credit score is a key factor that any lender will review. Credit scores provide lenders a snapshot of the risk they will be taking on by providing you a loan. With a higher credit score, your application for a personal loan is more likely to be approved. In addition to this, higher credit scores are more likely to receive lower interest rates. By taking the time to review your credit score beforehand, you can decide if it’s responsible to apply for a loan now or to wait until you raise your credit score.
What are the terms of the loan?
Lenders provide personal loans, but there is an attached caveat to each one. Understanding these terms and conditions before entering into the contract is vital. Some lenders have different options when it comes to repayment terms, pre-payments and limitations on use. When applying for a personal loan, the longer the term of the loan, the smaller the payments. However, you end up paying more interest to the lender by the end of the term. Taking out a loan for longer than you need may end up costing more in the long run. Additionally, there are times where you may want to use some extra money to pay off a bit of your loan early. Understanding what your lender’s terms are when it comes to pre-payments can keep you from incurring unwanted fees.
Is this a legitimate lender?
Before the Internet was everywhere, personal loans were primarily handled through a physical branch of a bank. However, over the last several years, there has been a rise in online lenders that offer personal loan alternatives to the traditional “brick and mortar” bank. One of the key things to consider when pursuing a personal loan is the legitimacy of the lender. While there are well known online lenders, such as Lending Club or Karrot, not every online lender is equal. Make sure to complete some research from sources online, such as checking for a Better Business Bureau profile or simply completing an Internet search for reviews of the company. A little due diligence can go a long way.