Personal Loans Dos and Don'ts

Debt is never good. But when you need to take out a loan, sometimes people really get screwed because they don't do their proper homework. Here's a list of do's and don'ts when it comes to talking out a loan so that you don't get yourself into trouble.

A personal loan is available to anyone for virtually any purpose. Many people take out these loans for sudden expenses or when an emergency comes up and they don't have time to save the money. The short-term loans are easy to pay back, and installment plans are possible. The borrower gets a loan according to their monthly income and household expenses.  

Do: Review Your History First

Credit scores and reports show lenders how well the person manages their finances. If they have a collection of negative listings, lenders won't approve a loan application. The loan type could give the borrower some leeway on their credit scores. Some mortgage programs accept a score as low as 620, but a traditional personal loan requires a higher score. 

Lenders who cater to applicants with bad credit will accept a credit score as low as 550, but the interest rates are higher. It is recommended that a consumer increases their credit scores and request the removal of any outdated information on their credit history before applying. Individuals who need money fast can visit and review their options. 

Don't Overextend Yourself If You Have Bad Credit

A common mistake people make is to get so overeager to get a loan that they don't review the interest rate. The interest rate determines how much they pay overall, and for some borrowers, the interest could double the amount of their debt. While everyone needs money sometimes, the person must consider how much they want to pay back in total. On average, a great interest rate doesn't exceed 10% for a personal loan.  

Do: Read All the Fine Print

Fees and costs for a personal loan are not just the monthly payments. The origination fee is deducted from the loan amount upfront, and it can range up to 5% of the loan amount. If the borrower misses the due date, they incur late fees and extra interest because the payment was overdue. The interest rate depends on the customer's credit scores, the amount of the loan, and if it is a fixed or variable-rate loan. If the borrower pays the loan off earlier, there is a penalty. 

Don't Accept the First Loan Offer

Many people want a loan so badly that they accept the first offer instead of shopping around. If they compare interest rates, the borrower gets a better rate and lower loan payments. Many applicants don't understand that they don't have to agree to the terms of the loan and have some room for negotiations. If they find a better product through another lender, it's possible to save money and avoid a default.  

Do: Ask for a Preapproval from Several Lenders

With online lenders emerging everywhere, it's easier to find more options. The consumer can get a preapproval from different lenders and compare the terms. Online lenders send an offer through the person's email, and they can review the terms through split-screen features on their computers. Once they have several different offers, they can choose the option that has more affordable rates and payments.  

Personal loans are designed to help consumers get a little extra cash when they need it. Most lenders don't question the purpose of the loan, and the loans don't require collateral. The repayment method is usually the borrower's bank account, and the lender can deduct the payments automatically.  

Penniless Parenting

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

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