Do These 3 Things Before You Take Out a Personal Loan : Financial Stress

Personal loans are viable options for many financial situations. In some cases, you can borrow money to pay for a large unexpected expense. Or, a personal loan can be used to consolidate debt.

Unsecured personal loans come with a fixed interest rate. They aren’t backed by other assets or collateral. They’re usually for a few thousand dollars and are repaid each month. Unsecured loans are typically issued for between 24 and 60 months.

The interest rates for personal loans are based on your credit history. Lenders look at things like your credit report, your current debt, and your credit score. Personal loans could be issued by both local banks or large online lenders.

If you have better than average credit, you can expect to get a better interest rate. You can also borrow more money with a better credit history. For those with low credit scores, finding a personal loan can be more challenging. They can expect higher monthly payments or stricter loan terms.

To increase your chances of approval for a personal loan, ensure you have a steady income. Having a history of on-time payments can also improve your chances of getting approved.

Before Signing a Personal Loan

Before you commit to a personal loan, we recommend taking the following actions:

Compare Your Personal Loan Options

First of all, always compare your options. Depending on your needs, different loan options may be more appropriate.

For instance, a 0% interest credit card could be a better fit if you don’t need much money or can pay it back during that introductory loan period. A personal loan may be better for lower monthly payments spread out over a longer term.

Determine Personal Loan Payments And Rates

Next, figure out what monthly payments or interest rates you’re comfortable paying. This will help you filter your loan options as you shop around. For some, a secured loan may make sense. By using your bank account or other assets to back your loan, you may be able to get a better interest rate.

Depending on when you need the loan, try to better your credit before applying. Having a strong credit history or a high credit score can get you better interest rates. For example, taking out a credit card for a few months to pay off every month can build credit.

How Is Your Financial Health?

Finally, consider your overall financial health before applying for a personal loan. Personal loans should be used as only one piece of your financial plan. They can help you restructure your debt or pay for large expenses. But if you believe a personal loan may add to your financial burdens, it may be smart to look at alternatives.

Hopefully these tips will help you while you do research on personal loans. If you think we missed anything or have a question about personal loans, let us know in the comments and we’ll address it. And don’t forget to subscriber to our newsletter for the latest from financialstress.com.