Why Personal Loans are Necessary
April 8, 2019 | By Louis Tully
Like it or not, there may come a time when you have to shell out more cash than your bank account can handle. And if saving money isn’t your stronghold, then borrowing the money is your only option. Thankfully, taking out a personal loan isn’t as complicated or expensive as you might think. First, there are plenty of options available; some with lower rates, some with longer repayment periods, and others with a bit of both! Yet all of these loans have a few things in common. To start, here’s a quick guide that will show you how to shop for your loan, how to pick the best one for you, and a few tidbits on how these loans work in general:
How do personal loans work?
Whenever there comes a time to pay for something your current cash flow just can’t handle, a personal loan will give you the spending power you need to get the job done. Need to get your car fixed? Got a medical emergency? Need some serious repairs done to your home? A personal loan can help extinguish all of these financial emergencies and then some.
Here’s how it works
- You’ve got an emergency: This is the part that’s out of your hands. Life has a way of throwing the occasional curveball and to say it’s incredibly stressful would be an understatement. But the best thing to do when caught in a financial emergency is not to panic! Relax, assess the situation, and get ready to take the next step.
- You take out a personal loan to cover the bill: The next step is to start shopping for a personal loan to cover the cost of your emergency. For this, you could go to your primary bank to request a loan or shop for one online.
- You pay back your loan over time: The final step is to pay back the money you borrowed. But don’t worry, it’s not as daunting as it sounds. Most lenders will give you optimal time with an affordable rate to make paying back your loan as painless as possible. Not only that but in paying back your loan, you’ll simultaneously be helping your credit, positioning yourself to qualify for even better loan offers in the future!
Pretty straightforward right? Now, let’s take a closer look at personal loans; how to shop for them, and how to get the most out of your borrowing experience.
More about personal loans
When searching for the ‘right’ loan, it’s important to answer a few questions first. “How much do I need to borrow?” “What can I afford to pay every month to pay back the loan?” “Am I getting the lowest rate possible?” “How long am I willing to spend paying back the loan?” To help answer these questions, here’s a bit of information to guide you:
All personal loans will come with a fixed interest rate. This is how lenders make their money. Not only are you expected to pay back what you borrowed, but you have to pay the interest too. It’s not all bad though. Interest rates on personal loans can be as low as 5%.
All personal loans have fixed monthly payments that must be paid on time. A lender will tell you exactly how many payments you’re expected to pay, how much they will be, and how long it’ll take to pay off the loan. Repayment periods can extend anywhere from 12, 24, 36, 48, or even 60 months.
Improving your score
A lender will always look at your score before approving you for a loan. They do this in order to make sure they can trust you with their money. The higher your score, the more they can trust you. Not only that but having a high score will give you better loan options to choose from too! But if your score is fair at best, you might get stuck paying a little more interest this time around. However, after successfully paying back the loan, your score will go up, allowing for better loan options in the future.
Zero property risk
The beautiful thing about these types of loans is that there’s no property risk involved. In other words, the lender isn’t going to use any of your assets as collateral to secure the loan. So if you fail to meet your repayment agreement, you’re not at risk of losing your property.
The right amount
It’s important to only ask for the exact amount you need to settle your financial emergency. Many consumers are tempted to ask for a little more than they need, but all they’re really doing is digging themselves a deeper hole. If you only need $10,000, don’t ask for $15,000 thinking you might need the extra $5,000 for something else. Just take out what you need and pay it back. This will make the lending process way easier for you to manage.
Other things to consider
Your ability to repay
Taking out a loan always requires some thought on whether or not you can pay it back. For this, it’s wise to have a budget in place so you can figure out how much you can actually afford to pay each month. Not having a budget set up ahead of time means you’re borrowing blindfolded and possibly setting yourself up for disaster. Have a plan, know what you can afford and then shop for the loan terms that fit your budget.
The lender and the interest rate
Every lender is different, and some may be more stingy with their interest rates than others. That’s why it’s important to shop around, checking out multiple lenders first before making your decision. Remember, interest rates will likely vary from lender to lender, which is why it’s always better to look at more options than few.
Before you say yes to a loan offer, always go over the fine print with the lender. Make them go over it with you line for line. This part can’t be stressed enough. You need to know exactly what you’re getting yourself into before signing off on anything. You’re already facing a financial emergency. The last thing you need on your plate are hidden fees, undisclosed restrictions, and other hairy obstacles.
When going in for a loan, make sure you have all the required documents ready to go beforehand. This will make the loan shopping experience go much smoother while taking the stress out of an already stressful situation. These are some of the documents you’ll probably need to have with you:
- A copy of your credit report.
- Proof of income.
- Your driver’s license.
- Your most recent bank statement.
- Your most recent tax return.
Overall, getting a personal loan doesn’t take much. Most people with decent financial standing can qualify for the extra cash they need to get out of a hairy situation quickly and easily enough. But for those of you who don’t have the luxury of a strong credit score, there are alternative options available in your area. Payday lenders near you are ready to help you fill in last-minute financial gaps when all other options are shut out. Reach to your local lender today for information and happy borrowing!