How To Pick The Right Personal Loan For You

Before I go on with this post, I need to say that I am anti taking on avoidable debt. Sometimes its necessary, sometimes there are emergencies, but please, if at all possible, cash flow your expenses and make sinking funds to prepare for future "emergencies" so you don't need to take a loan.
However, sometimes it is inevitable, especially with medical issues that come up, or sometimes it can be a financially smarter move to take a loan out at a lower interest rate than what you're paying elsewhere. If you've thought it through and taking out a personal loan is the right thing for you, here's how you make sure you pick the right one for you. 

A personal loan can be a great and convenient way for many people to ease off financial strains or even a way to improve their quality of life. Whether you want to settle a past debt, applying for a master’s program, or looking forward to going on an expensive vacation, a personal loan can be a solution for all your financial struggles or aspirations.

Before moving on to explain how to pick the right personal loan for you that would fulfill your needs, let’s first get started by defining what a personal loan is and how to choose the right one for you.

What is a Personal Loan?

A personal loan is borrowing money from a bank, a credit union, or online lender, which you repay through monthly payments or in installments. Most personal loans are unsecured, meaning that you do not have to back with an asset or collateral such as your house or car.

You can use a personal loan for any purpose as most personal loans aren’t restricted for a specific purpose, here are some examples:

  • Debt consolidation
  • Medical emergency
  • Educational expenses
  • Upgrading to a new house or making various repairs to an existing one
  • Social events such as a wedding
  • Paying off credit card bills
  • Traveling to see a dying relative

Before you decide to apply for a personal loan, here are some tips that can help you pick the right loan:

Identify your needs

You should first begin by identifying your needs. Think about what you need the personal loan for and the amount of money you will need. Is it a marriage loan? Travel loan? Or a personal expenses loan? There are several types of personal loans, so you should know those types before you apply and find out which one fits your needs and criteria.

Compare lenders based on interest rates

The interest rate is typically the factor that will have the biggest influence on your decision. Your loan interest rates will determine how much you pay in installments, so the goal is to get the best rate that you find. As interest rates differ across lenders, you can start making a simple personal loan comparison in order to know which bank or institution will give you the lowest interest rate. You can create a comparison of several online platforms, or research the banks’ websites in order to compare their different interest rates. This way, you will be able to know which bank or lender will offer you the lowest rate and will help you make the right decision.

Compare other fees and charges

The interest rate isn’t the only rate you should be looking at when thinking about a personal loan. There are other charges and fees that you should be looking at as well, such as a processing fee, which is payable along with the loan application. Besides this charge, consider the loan’s other charges, such as origination fees, prepayment penalties, and late payment fees. Once you know those charges as well, compare which fees are the lowest in order to be able to make a decision.

Check the available repayment options

Personal loans actually allow diverse repayment options other than the required monthly payments. Ensure that you have flexible repayment options in case you want to increase your equated monthly installments (EMIs) or prepay a part of the loan after a specified time. Make sure you understand the available repayment options in order to choose the most flexible conditions. This way, you will be able to pay off the loan easily and more conveniently.

Find an EMI you can afford

Before you embark on taking a personal loan, you have to ensure that you will be able it afford the monthly fixed repayments that you have to pay off in order to repay the loan on time without any extra charges or penalties. For this, you should calculate an estimate of the EMI that you will have to pay on a fixed basis and make sure that your monthly EMI deductions are not more than 50% of your income.

Taking a personal loan can be a convenient financial resource that you can use whenever you are in need and the good thing that it does not require you to pledge any collateral. If you are about to start a new life with your partner and planning your wedding, or want to ensure you will be able to secure your child’s education, a personal loan can help you out during those times. Just follow these simple tips which will help you make a well-informed decision and get the best personal loan for your financial obligations.

Penniless Parenting

Mommy, wife, writer, baker, chef, crafter, sewer, teacher, babysitter, cleaning lady, penny pincher, frugal gal

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