Personal loan directly impacts your credit score, so you need to be very averse while taking personal loans. It is one of the easiest loans you can get. But it is also one of the most expensive loans. The interest rate of a personal loan can go up to 35%. It is four times more compared to an SME Business loan. When you take a personal loan, you have to know certain things about it.
It is not like any other loan. If you fail to pay this loan, not only your credit score will go down, you may also incur personal liability. Their people constantly take personal loans to know all the important things about it. They use the knowledge to their advantage.
If you want to go for a personal loan, you have to know the factors and the things that affect it. There are different types of personal loans. You need to check all the options and alternatives to get the best deal out of it.
If you want to avoid paying a higher interest rate, you need to maintain your creditworthiness and opt for low interest personal loans. You can also opt for an instant personal loan if you don’t want to go to a bank to get it.
10 Things You Need To Know Before Taking a Personal Loan:
Although you should get complete information before taking a personal loan, you should compulsorily know there are ten most important things.
- Purpose of getting the loan:
Personal loans are only meant for personal use. You can use it for other purposes as well, but it won’t be advisable. Personal loans have a high rate of interest. So you need to know about your purpose in getting the loan. If you want a long for education, go for an education loan. If you want a loan for business, go for a business loan. The purpose of the loan will help you get the best type of loan.
- Higher Interest Rate:
Personal loans have a higher rate of interest compared to other types of loan. You need to know what you are entering into. If you are a risky customer, you might pay up to 35 % interest as well. There are other alternatives that are way cheaper than a personal loan. You can consider it or go for a low interest rate personal loan. To get that loan, you need to have a good credit score. It directly impacts the interest rate. The interest rate also depends on security. If you are keeping collateral security, the interest rate will be less.
- Credit Score Matters:
Go for a personal loan only if you have a good credit score. If your credit score is bad, and you are going for an insecure personal loan, the interest rate will be high. In some cases, the APR reaches up to 36%. For example, if you are taking a personal loan of $10,000, you will have to pay back $13,600. It is not at all feasible. If you have a good credit score and you give security, you have to pay less interest. The APR can be 7% in such a case.
- Not for Long Term:
Personal loans are basically short term loans. You cannot take this loan for tenure for more than five years. In some cases, you can get it for seven years, but not beyond that. You cannot take personal loans for a long time period.
- Multiple Options:
There are some people who believe that banks are the only source of getting a loan. But there are other sources from where you can get a personal loan. You can get the loan from banks, financial institutions, credit union, money lenders, private lenders, FinTech companies, family, fields, etc. You need to search for the best option to get a personal loan. This way, you can take advantage of the interest rate difference.
- Quick Cash:
Personal loans provide quick cash. These loans are also known as emergency loans. You can take it quickly during an emergency. The processing time of this loan is very less compared to other loans. It is because there are not many documents needed to get the loan. You can even apply for instant personal loans. These are online loans. You can fill the online application form and get the approval and cash within the same day. It is the swiftest type of loan.
- Pay Off Debt:
A personal loan helps you to pay off the existing debts. If you are in too much debt and can’t seem to get out of it, you can use personal loans. You can take a personal loan and pay the existing loans with that amount. This way, you don’t have to pay compound interest. You can manage one personal loan instead of dealing with multiple old debts. However, you need to make sure that the rate of interest of the personal loan is less than the other combined old loans.
- Check for Extra Fees:
Apart from paying the interest rates, you need to pay other fees and charges as well. You have to pay loan processing fees, late payment fees, early payment fees, and a lot more extra charges. You need to know about all the extra charges and fees so that you can check if there is another better alternative.
- Loan Depends on Your Income:
The personal loan depends on your income. The lender will come as for your income proof to grant you the loan. They will check your income first, and then give you the loan.
In most cases, a personal loan is unsecured. But in some cases, you have to provide security as a collateral to get the personal loan. The advantage of security is that the interest rate will be less. But if you don’t pay back the loan, you will have to put the security at risk.
These are the ten important things you need to know before getting a personal loan. This information will help you to make a better choice and make the most of the personal loan.