You never know when you will end up in dire need of money. Dreaming of a new home or a car, renovating a home, kicking on an abroad vacation or entrapping in some issues like an accident or medical problem trigger need for some extra money. We all have been there at some point in time when we need the money, but our account balance presents a ‘sorry’ figure. Rummaging through different options to manage the extra money, most people end up getting a personal loan.
A personal loan might be a handy option, but most people forget that it is not your money, and you have to return the loan with interest eventually. So, a personal loan shouldn’t be taken impulsively because failure repay the loan could damage your credit rating, and you may incur late fees as well. Here are given some things to consider before signing the loan contract.
Analyze the Situation
It is better to analyze the whole situation before taking out a loan. See if you can pass by the situation without taking the loan? Do you really need a loan, or are you just following your desire to splurge? Will you be able to manage money without taking a loan if you wait for a month or two? Is there any other better option than taking a loan? You should ask yourself these questions and take the decision accordingly. And if you can’t decide anything, then it is better to take someone else’s advice who can give unbiased suggestion for your good.
Don’t Forget the Interest Rate
Most people forget about the loan’s interest rate when deciding whether to apply for a personal loan. On top of that, the interest rate for a personal loan is different than a standard mortgage, which is usually 4 percent or less. However, the interest rate for a personal loan is pretty high. It can go up to a maximum of around 24% per annum for banks and 48% per annum for licensed moneylenders. The reason is that personal loan is a bigger risk for banks and money lenders as compared to a mortgage where you put your home or any other precious thing as security. (See also: Smart Loan directory to get further information about loans).
Check Your Credit Score
Licensed money lenders often check your credit score before approving a loan because it doesn’t have collateral. A credit score is a criterion to judge that you will be able to return the loan or not. If your credit score is good, things will be pretty easier for you. But if you have a bad credit score, then your loan application might get rejected. In case of acceptance, get ready to face harsh terms and conditions and high-interest rate. So, it is better to improve your credit score before applying for a personal loan if you want to save yourself from any trouble.
A personal loan might be a timely solution in case of a financial crisis, but it is not a permanent solution. You have to return it within a fixed period if you don’t want to face any issue. So, it is better to think of all possible dimensions before taking a loan to save yourself from any trouble.