There are many reasons you may want a personal loan rather than using your credit card. Personal loans can be used for paying off debt, educational fees, home improvement, car financing, wedding expenses, travel, training, and business expenses. The first thing you need to do is understand the terms of the loan, so you don’t get yourself into a bigger financial problem. To obtain a personal loan with a reasonable interest rate, you need to have a good credit score. If you don’t, the interest rates can be even higher than your credit card.
Deciding Upon a Type of Loan
The two types of personal loans are secured and unsecured. A secured loan means you have denoted something as collateral in the event that you do not repay the loan on time. This is most often your house but in some cases can be your car or boat. A secured loan has lower interest rates than an unsecured loan, but if you fail to pay off the loan, you could lose your collateral. Unsecured loans are signature loans. This means the lender relies on your signature in order to be repaid. You need to think carefully about which type of personal loan you want.
Deciding Upon a Lender
Once you have decided what type of loan you want, you need to decide who the lender will be. Credit unions and banks offer personal loans. It is considered wise to get a personal loan from the bank with which you regularly do business. If your bank knows you, they may be more willing to give you an unsecured loan.
Whatever lender you select, make sure you have called other lenders to compare interest rates and terms of condition. These include late payment fees and, possibly, fees for repaying the loan early. When you are checking several lenders for their rates, don’t give a loan application until you have selected the lender. They may say you have to apply for them to give you the interest rate, but you can ask for a ball-park number. You could also ask what credit score they require for their lowest interest rates.
The reason you shouldn’t apply until you are sure you want the loan, is because every time you apply, the lender will check your credit score. If this is done too many times, it could lower you score. When you score goes down, interest rates go up.
Once you have a good idea about the interest rate you’ll be charged at your bank or credit union, you can look online for personal loans from peer-to-peer websites. They may give you the best interest rates. Most sites will offer loans up to $25,000, but you need to have a good credit score.
If you don’t know what your credit score is, you can ask the credit reporting bureaus or find it online. If it isn’t high enough to allow you low interest rates, you need to find ways to improve it. The first thing to do is to view your credit score report to make sure it doesn’t have any inaccurate information about your debts.
Featured Image: DepositPhotos/ BrianAJacksonPosted on May 22, 2023