There are times in life you may need some financial help. A personal loan may allow you to consolidate debt, catch up on bills, or just handle an emergency. But before taking out a loan you need to consider the responsibility that comes with it. Paying back the loan, with interest, may become harder than you expected. You also need to consider the different types of loans.
We’ll give you the top ten tips when considering a loan:
1.You Need a Plan for Repayment
When you take out a loan be sure you know what your payments will be. Many loans require larger ‘balloon’ payments at the end of the term. Be sure you have a plan to make your payments in full and on time. Consider that other expenses may appear during the life of the loan.
2.Collateral Means your Assets are at Risk
Many loans require you to offer collateral such as your home or car. That means that if you cannot repay the loan the lender will take that asset. Consider the seriousness of potentially losing your home when taking such a loan.
3.Your Credit Score may Impact your Borrowing
Your history as a borrower is maintained by credit bureaus. Lenders will check this history when considering the terms, they will offer you. Bad credit means higher interest, and lower amounts can be borrowed.
4.Know your Loan Types
Different types of loans come with different terms. Title loans use the title on an asset as collateral. A personal loan is unsecured. A secured loan will likely allow you to pay less interest. Shop around for different types and terms.
5.You can Insure your Payments
Payment Protection Insurance can cover your payments if you are unable to work. It can be expensive, so you may hesitate to consider it. However, it can save you from a bankruptcy if your income drops due to accident or illness.
6.A Credit Card may be Simpler
A credit card allows you to borrow when you need and repay as you are able. Though the interest rates are often high the flexibility may be better for you. For small loans, this might be a better option.
7.Rates can Change
Under some circumstances, interest rates can change from what was initially agreed. Especially with home loans, the rate may be tagged to current interest rates.
8.Fees can Add Up
Especially with non-bank loans, there may be fees on top than interest. If payments are late, even more fees can accrue. These fees can quickly become a problem if you’re not on top of them.
9.There are non-bank Lenders
Not all loans come from banks. Many home, and car loans come from independent finance companies. In recent years there has also been an explosion of ‘payday loan’ companies offering short-term loans. Depending on your needs you may get a better deal than with a bank loan.
10.Risks of Nonpayment
Failing to pay means defaulting on the loan. Your lender may send the debt to collections or even initiate legal action. Your credit score will be impacted for the next seven years making it much more difficult to get another loan. Any lenders who will consider you will offer worse terms and expect more collateral.
Borrowing money is a serious matter. You have a responsibility to your lender, and there are risks that come with borrowing. You should consider carefully whether a loan will help improve your circumstances. Some lenders are more reputable than others. Consider carefully before entering into any loan agreement.