Know This about Personal Loans before You Decide to Take One
by Arina Smith Loans & Credit 19 May 2018
It is always important to seek information before venturing into the unknown, and this is even more important when it comes to money matters. As a borrower, you need to be aware that financial institutions will always want to give you a loan. Unless your credit is horrid, there will be someone from a bank or financial firm seeking to convince you to take out a loan.
There is a myriad of good reasons to take out a personal loan. A personal loan is an unsecured loan that is based on your income. Once the bank or financier ascertains that you are creditworthy, using a Forbrukslån kalkulator, the money lands in your account. Before you consider taking out a personal loan, read on:
Know This about Personal Loans before You Decide to Take One:
1. Interest rate:
The interest rate might surprise you. This is because your lender faces more risk than you. There is no collateral, so there is nothing for them to hold should you default on your loan. With car and property loans, they can always come for your car or house and repossess those and get their money back.
2. Credit score:
If your credit score is not good, you may not be eligible for a personal loan. Chances are you will bolt on this one too, so with no collateral, they creditors may not be willing to take a chance on you.
3. There are other lenders other than the banks:
There are credit unions that offer better interest rates than banks for the same products. If your credit score is on point, you can apply for a loan online and get fast approval and excellent interest rates. Before you opt for the bank loan, you might want to look into these alternative lenders first.
4. Personal loans are short-term solutions:
Unlike a mortgage that can take years to pay off, a personal loan goes for up to seven years or even less. Seeing you should not have to service a loan for longer than you need to, this is actually a good thing. On the flip side, if you need a lot of money, the payment might be quite stressful since you will be forced to part with a rather large sum of money every month.
5. They are great for when you need cash fast:
A personal loan takes a very short time to be approved, so it is a great source for getting some emergency funds. If, for instance, your roof caves in and you need to get it repaired fast, a personal loan is a way to go. Unfortunately, it can be very expensive since the lenders may play on your need for speed, but they can save you quite a headache. Most people prefer them for this very reason.
6. You can use a personal loan to pay off your credit card debt, student loans or car loans:
You can use a personal loan to pay off multiple debts and reduce your interest margin. It is cheaper paying one debt than paying, say, three different ones. However, you might be giving up a lot by consolidating a student loan, for instance, so that you can deal with just one loan. Some lenders dangle the possibility of refinancing a student loan as a personal loan. You may need to consider the terms offered for the new loan against your old loan before you make any move.
7. Look into other types of loans before you settle on a personal one:
Should you be looking around for a better offer on credit card debt, see what else is on offer out there. You might even be better off taking some money out of your retirement account for a short period of time. Make sure that you pay it back though. Just because it is your account does not mean you can dip in whenever you feel like it. That is how you will end up retired with no check.
Also important is to consider the reasons for the loan when deciding if you should go for a personal loan. If you are looking to renovate your house, you might be better off with a home renovation loan instead of a personal one. The same goes for a car loan. It is never a good idea to buy a car using a personal loan.
8. Fees and extra levies:
Make sure that you are informed about any extra payments that you are required to make the loan. Some lenders will ask for an insurance policy that you may or may not consider important. An emergency insurance policy might be important to shield your loved ones in case of any eventualities, but that should not be forced on you. Some lenders have that fee inbuilt, so as you pay back, you are also servicing an emergency policy.
9. A personal loan should never be used to fund expenses:
While you do not have to explain what you need the loan for, there are things that are not meant to be funded with a personal loan:
- An engagement ring – You do not want to start an important relationship off with a pile of debt.
- Travel loan – You will end your vacation on a low note once you remember the debt that awaits you over this trip. It is not worth it.
- Gambling – This one should not even be up for discussion. It is simply a no-go-zone.
- A down payment on a home – While the jury is still out on this one, what if you are not able to raise the rest of the money while you are struggling to pay off this loan? It is better to go with a mortgage on this one. After all, a down payment expresses a buyer’s ability to buy the home. You might luck out on mortgage approval if you pile on debt by having a personal loan.
Once the Forbrukslån calculator gives the amount that you qualify for, make sure that you do not deviate with regard to the needs for the loan, otherwise, you will find yourself paying back money with nothing to show for it.
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