Jul 17, 2018

6 Dos and Don'ts of Shopping for a Personal Loan

6 Dos and Don'ts of Shopping for a Personal Loan

Your monthly salary typically covers three types of expenses: fixed, variable, and discretionary.  If your monthly earnings can’t pay for all these and some other unexpected expenses, you will need to look for an additional source of funding.

A personal loan can help you pay for all these expenses if you are having a hard time doing so. It can also serve as a cash cushion and as an emergency fund which you can dip into whenever you need to.

Finding the Right Personal Loan

To get a loan that will meet your needs and payment capability, you need to shop around for the best product first.

Here are some dos and don'ts of shopping around for your first personal loan:

Dos

1. Check your credit score

Before you begin your search for the best personal loan, check your credit score first. There are various online tools you can use to be able to do this. If your score is a bit low, certain websites can give you tips on how to improve it.

Make sure you complete this step before you start shopping around for a personal loan provider. Keep in mind that if you have a high score, you will have better chances of getting great deals and lower interest rates.

In case your score is low, consider applying for a loan later until your credit score has improved. A good start is to pay off your credit card balances first.

2. Inquire first at banks and financial institutions you know

Chances are, you already have an account with one or two banks. You can start your search for a suitable product by finding out the different types of personal loans your bank offers.

Ask your bank representative what loan amount you can get and if your credit score can qualify you for a low-interest rate. Check the terms and conditions as well.

You can also ask your credit card provider if they have some personal loan offers, too. You may even be offered the chance to consolidate your credit card debt with the loan which is an option worth considering.

3. Be cautious when shopping for personal loans online

Going online is the easiest and most convenient way to start searching for a good loan product. However, you have to know which banks and lenders offer legitimate deals.

Some online lenders, for instance, target people with poor credit by promising them loans without checking their credit history. Avoid these sites since all loan applicants will undergo a credit check. They may even charge big fees or request loan payments in advance.

Don’ts

1. Apply for personal loans from several different lenders at the same time
When shopping for a personal loan, simply shop. Study the different offers and ask the different providers for additional details. However, do not immediately apply for products that you find interesting.

When you submit your loan application online or at the bank, the lender will immediately check your credit report and history. Your file receives a mark whenever this check is carried out. If you get too many marks from your multiple loan applications, your credit score will go down further. 

Because of this, lenders will see you as more of a credit risk. Your loan application will likely not be approved or you will be offered a higher interest rate. 

2. Get a loan without knowing how much you want to borrow and the right payment term

If you have a good credit score, you can apply for a high loan amount which the best banks will be happy to offer. However, you don’t have to get the highest amount possible.

You need to determine a suitable amount that will cover your current and possible needs in the future. In addition, it should be something that you won’t have difficulties paying for every month.

It is also best to look beyond monthly payment amounts if you’re still shopping around. It is often better to get a two-year loan with a higher monthly payment than a five-year loan with a smaller monthly fee. This is because the longer you take to repay the money you borrowed, the more a loan will cost you in interests overall.

3. Ignore accompanying fees and the loan product fine print

Once you have a list of the best loan products you can qualify for, make sure you know all the fees that come with each.

Take the time look at and calculate the following:

● Annual percentage rate (APR)
● Loan origination fee
● Interest accrued over time
● Early repayment charge

Lastly, before submitting your application, read the document properly. Ensure you understand all the terms and conditions, and that they match the ones that the lender advertised and had been discussed with you by the representative.

If you are unsure about anything, get in touch with a representative of the bank or lending institution to get additional information or a clear explanation.

A personal loan can help you out during your time of need. But do remember that you will have to repay the loan and, as such, you have to be careful in choosing a loan product. You have to be 100% sure that you will get an amount you are comfortable with and won’t have difficulties making monthly payments for in the next few years.

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