Personal loans can be a great way to solve cash flow problems. They can help you consolidate your debt, pay bills or help you out of an unexpected financial bind. You can even use a personal loan to fund a new business venture. Personal loans are great for many purposes as long as you do not use the money for frivolous things you really cannot afford. Additionally, any time you take on new debt, you should understand what you are getting into. Here are ten important things you should know that will help you find a great deal on a personal loan.
Know your FICO Scores
A large part of what determines whether or not you are approved for a loan and how high the interest rate is depends on your credit report. A lender will typically pull credit reports from Experian, Equifax and TransUnion and compare your credit score from all three. If you know your scores before you apply for the loan, then you can get a ballpark idea of what interest rate percentage you should be eligible for.
Check Your Reports
While you are looking at your FICO scores, check your credit report for errors. All too often people end up with lower scores than they should because of errors on their credit report. If you can find and correct these errors before you apply for a loan, then you will greatly improve your chances of getting favorable loan terms. It can take up to 30 days for the bureaus to resolve these errors, so you should pull your reports as early as you can.
Different lenders have underwriting guidelines, so not all their offers will be the same. Fill out an application at a website like creditloan.com personal loans or even prosper.com and they will submit your application to different vendors. Applying online is faster than going to multiple banks and online lenders tend to have higher approval levels and better loan terms. You are not obligated to accept any offers once you fill out the application, but is a nice, quick way to make comparisons.
Know the Fees
Almost all personal loans have fees besides principle and interest. Examine all your loan offers carefully and look for “hidden” fees. Sometimes a lender may charge a lower interest rate, but charge higher fees to make up the difference. In these cases, you want to make sure you know the total cost of the loan so that you can compare apples to apples. What looks like a good offer on the surface could be loaded with fees.
Figure Out What You Can Afford
The longer you have a loan out, the more interest you pay. Before you even apply for a loan, you should know how much of a monthly payment you can reasonably afford. If you do not already have one, set-up a budget to figure out how much you can pay each month. Once you have determined your monthly amount, try to get a loan agreement that allows you to pay back the loan as fast as you can without going over your budget.
Lenders lose interest if you repay the loan early. Some lenders will include penalty fees for paying off the loan early. Your best bet, if possible, is always to get a loan with no early repayment penalties. The exception to this rule is cases where you know you can pay the loan back early and the fees for repaying the loan will save you more money in interest payments than you have to pay in fees.
Type of Interest Rate
There are two types of interest rates, variable and fixed. Fixed interest rates tend to be higher, by comparison, when you take the loan out, but your monthly loan payment will always remain the same. Variable interest rates may be low when you take out the loan, but as the interest rates changes so do your loan payments. On the surface, a variable interest rate may seem attractive, but a fixed interest rate is your safest bet.
Payment protection insurance is also known credit protection insurance, loan repayment insurance, or other similar names. It is any type of insurance that pays on your loan if you cannot make the payments for some reason. Some people consider it a valuable investment; others consider it a waste of money. If you do decide to purchase loan insurance, shop around for different quotes. Do not assume the lender offers the best price.
Unsecured vs. Secured Personal Loans
Unsecured personal loans tend to come with a higher interest rate because the lender is taking a bigger risk. If you have any assets that you can use as collateral to secure the loan, you will most likely get a better interest rate. The downside to this is that if you default on the loan, you are putting your personal assets at risk. This is another reason it is important to be certain you can afford the loan payments.
Have Your Documents Ready
A startling number of loans are rejected every day simply because the applicant did not provide all the required financial documentation. Even worse, the loan underwriter may charge you a higher interest rate because he or she did not know your complete financial picture. Be sure to gather important paperwork like tax forms, checking account statements, deeds, title and everything else that the lender requires. Do not submit an incomplete application.
Applying for a personal loan can be a little bit stressful, but getting a loan can be a huge help when you need it. Even though you may feel like you are at the lender’s mercy, you really are not. You are the consumer and if a lender wants your business bad enough then that lender will work with you to come up with a good loan deal. Just be wary of lenders who use high-pressure sales techniques. Be certain to base your borrowing decision on facts that make good financial sense and not on a sales pitch.
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My Financial Independence Journey says
I would add that you should be very aware of your own cash flow situation. You want to make sure that you have enough income in order to repay the loan on time.
If you’re going to be applying online for loans, or anything that requires your social security number, make sure the site is reputable. Check backgrounds and make sure the link on the bottom is the correct site.
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wise thinking, if it looks too good to be true, it probably is.
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Pauline P says
now is as good a time as any! I would be worried about errors, because fraud you would have been warned otherwise.
One more point. Do you really need a loan? What is is for? I’m more about trying to get rid of debt than creating more. There are things that may be worthwhile getting a personal loan for, but I would think about it long and hard before doing getting a personal loan.
SA Personal Loans says
I would say that the most important part when making a personal loan should be checking that you can afford the payments, and of course to be sure that the loan will be used wisely and in a manner that will leave you better off than you were.
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Micheal Clark says
Thanks for the tips. i am sure these will help me further. keep writing such posts. Best of luck. 🙂
SA Personal Loans says
A great tip would be to make greater payments than required, if there is no penalty involved.
Personal Loans 4 All says
The best tip is to have a plan with the money before signing for the loan.
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Loan Broker says
A great tips, I am sure these will help people while applying for a Personal Loan.
Thanks for such a wonderful tips !
Elden Gatley says
I agree that you should know the fees. Most of the time, you’ll find the fees to be necessary and not excessive. Sometimes, though, you may find a company or two that charges you too much in fees.
Jay Jorgenson says
I think it is wise advice to make sure you are not getting a personal loan to buy something you really can’t afford. From experience, I have seen friends and family get into financial trouble living beyond their means. As long as you are doing that, and understand the interest rate and payment obligations you should be okay!
John Ferrell says
I like that you said that we need to look for hidden fees with the loan. When I got my first loan then I didn’t think to check for fees. Getting professional help showed me that I didn’t know about all of the things that I was paying for.
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Ridley Fitzgerald says
Thanks for the tips for getting a personal loan. It’s good to know that there are some that may have hidden fees, so I’ll watch out for those. I need some quick cash, so this is all really helpful to me!
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I liked that you had mentioned that it can be important to shop around to make sure you shop around to find the best loan terms possible. My wife and I have hit a rough patch and we need some money to get by for the next few weeks and we haven’t really been able to handle that yet. We’ll have to start shopping around for a loan and we’re hoping that we can get it in cash to help get by with everything.
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Ridley Fitzgerald says
You’ve got some great tips for getting a loan. I like how you said that before even getting a loan, we need to find out how much we can afford and for how long. We want to get one so we can travel the world, but we’ll have to do some budgeting first!
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Gerty Gift says
Thank you for the advice about interest rates. I have been hearing about how great variable rates are, but I like the security of knowing how much I need to pay each month. I’ll probably shoot for something with a fixed rate, just so that I can plan my budget better.
Rosie Beckett says
My husband and I are planning to build our first custom home together and we are looking to take out a personal loan. We have never done this before, so I am glad that I found this article. You make a great point that you should shop around and compare the rates and discounts that come with the different loans. Also, I will definitely find out if there are any fees besides principle and interesting because I definitely want to avoid any hidden costs!
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Katie Wilson says
Thanks for the advice about checking your FICO credit score when choosing a personal loan. Knowing your score would probably affect things like the insurance rate and things like that. My brother is looking for a personal loan to help pay for a wedding ring, so he’ll have to consider his credit score first.
Kate Wisner says
Thanks! Nice advice here. Well written, too, which is always a plus! Like a few of the commenters here – *waves at Katie / Michelle / CF * I’ve seriously neglected my Credit Score in recent years, which has affected my ability to get a loan.
Something else I’d add – and I shamelessly learned this from Reaching Our Balance’s complimentary post here http://www.reachingourbalance.com/guest-post-6-tips-for-avoiding-a-loan-application-rejection/ – is that you might want to consider asking a friend or family member to ask as a guarantor. It isn’t for everyone, but it’s helped me land a much-needed loan in the last 12 months that’s instrumental to myself and my family’s ability to get back on our feet. Well worth thinking about!
Mark Murphy says
I really appreciate your tip to try and find out whether or not your interest rate will be constant or variable. My wife and I have been thinking of getting a new house, and we want to get a loan to help pay it off. I will be sure to check and see what type of interest the loan has!
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Katie Wilson says
Thanks for the tip about considering the fees involved with a personal loan. It would make sense to find something that is going to be affordable. My husband and I are looking for a personal loan to help restructure some debt, so we’ll have to consider their fees first.
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Sutton Turner says
I like how you said to make sure you know and collect your credit scores. I was thinking of getting a loan to buy a home with. Thanks for the tips on getting a loan.
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I like how you mentioned that different lenders have underwriting guidelines, so not all their offers will be the same, so it’s important to shop around when getting a loan. My husband and I aren’t doing great financially, and we need to get a loan to help us get by. I will definitely keep all of your great tips and information in mind when trying to get a loan.
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Eli Richardson says
Thanks for pointing out to know how much you can afford to pay monthly before applying for a loan. My best friend has been talking about getting a loan for a car. If he decides to get a loan, I will let him know to be sure to check the requirements beforehand.
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Drake Welsh says
I thought it was helpful when you suggested to check the fees of a loan service before you apply. My wife and I need a loan to help us with our bills. When we look for one, I will be sure to check the fees beforehand.
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