8 Things To Consider Before Availing Financial Loan
Getting a loan has the potential to solve any financial problems you’re having right now. However, it’s not something that you should jump into without considering your status. Securing a loan has its own pros and cons and dealing with them smartly requires that you look into your own unique situation before you decide.
To help you out, we’ve summarized 8 critical points you need to consider before taking out a loan.
1. Do it for the right reasons
Think about why you’re in need of cash before you get a loan. Are you planning on buying something you don’t need? Or is there a medical emergency that you have to deal with financially? It goes without saying, but getting a loan so you could buy something impulsively is a bad idea. If you need money for a sound investment, such as getting an education or paying for an event like a wedding or a funeral, then getting a loan is fine. The last thing you’d want is to suffer through debts just because you had to buy that bag that was on sale on Amazon a few months ago.
2. Some loans have higher interest rates
Compared to mortgage loans, which more or less hover at 4% interest, personal loans have at least double the rate. In some places, the average interest rate for a personal loan is at 10%, and can even go as high as 25%. This can be a huge monthly burden for anyone. If you visit Nordiclenders.com, you can find tools that can help you compare one loan from another. This can help you with your decision making, and also help you pick the most optimal interest rates for your situation.
3. Take your credit score into account
A huge determining factor on how high your interest rates will be is your credit score. Because personal loans don’t involve collateral of any kind, lenders generally increase the interest just to cover the risk of default. If you’ve proven yourself to be responsible when it comes to paying off your debts, then potential lenders will be a lot more forgiving with the interest.
4. Consolidating debt
Taking out a loan to consolidate debt can help you in a number of ways. Consolidating debt basically means you’re taking out a loan to pay off your existing debts. Not only will the volume and number of bills you need to pay go down, you’ll also be able to manage your interest rates better. It’s basically a reset button for your interest rates, since you’re putting your current debts into a new one and focusing your efforts it without spreading yourself too thin.
5. Other fees
Aside from the interest rate and the debt itself, you’ll also be required to pay certain fees on some loans. This may include insurance, service fees, establishment fees, withdrawal fees and more. Make sure you familiarize yourself with the type of loan you’re getting and be prepared for any additional costs you may need to pay so it wouldn’t come as a shock when the bills finally come.
6. Penalty charges
Sometimes it’s unavoidable that you can’t pay your debts on time. If you believe that may be the case, it’s a good idea to check your potential lender’s policies on late payments. Penalty charges can be unforgiving, so to avoid getting yourself in hot water needlessly, it’s best to read the fine print to keep yourself informed.
7. You can get loans from different places
Banks aren’t the only places you can get loans from. As a matter of fact, when it comes to interest rates, banks aren’t the best places to get a loan. Credit unions often give loans that have lower interest rates with lesser fees than banks. Other lending companies are also available that provide competitive rates with high chances of approval. The trick is to know what your needs are and finding the right place that can accommodate you properly.
8. Personal loans are not long term
Unlike mortgage loans that take decades to pay off, personal loans generally go anywhere between a few months to a few years. This means that when it’s time to pay up, your monthly payments may be higher than what you would pay if it was a mortgage loan. This is generally the case even when mortgage loans involve a lot more money than personal loans do.
A personal loan is simply a tool for you to maintain good financial health. It shouldn’t be something you take just so you could live in luxury for the next few months or so. Taking a loan without considering your own situation is tantamount to financial suicide, adding unneeded burden to your wallet.