3 Ways to Stay Safe and Smart with Personal Loans
Taking a personal loan is probably one of the easiest ways to raise funds for expenses not covered by traditional loan types. You can get an auto loan to buy a car; mortgages could help you buy a house, home equity loans can be applied towards remodeling projects, and business loans can help you start a business. However, you’ll find countless number of financial expenses that are outside the scope of regular loan types.
Hence, many people are opting for personal loans in a bid to raise cash to meet important financial needs. However, a loan when not properly managed can easily denigrate to become a debt. Stories abound about people who ran into financial troubles because they didn’t manage their debt properly. This article provides insight into three smart ways to protect yourself when taking a personal loan.
- Borrowing more money is smart
Most experts will advise you to exercise self-control on the amount of money you request when applying for a personal loan. Of a truth, you should be careful of borrowing more money than you need or than you can afford to pay back conveniently. Nevertheless, it might be in your best interest to take the contrarian advice to borrow more money.
One general rule to understand is that the interest rate payable on a loan tends to be lower as the loan amount increases. Hence, those who borrow more money are likely to pay less in interest rates than those who borrow a lesser amount.
Bankrate’s national survey for June 15, 2016 showed that the interest rate on personal loans was somewhere around 10.94%. However, the interest rate was down 11.12% from 2015; hence, it appears that lenders are trying to attract borrowers with lower rates. If you want to borrow a higher amount of money, the lender will be positively disposed to lowering your rate in order to get your business.
- Be wary of automatic withdrawals
You need to put your desperation in check when applying for a personal in order to avoid making hasty decisions. Lenders know that many of the people taking out personal loans are desperate for the cash; hence, they could leverage the desperation to their advantage. Some lenders could request access to your bank accounts for automatic withdrawals of the monthly payment on the loan.
The idea of automatic withdrawals for loan repayment sounds nice on paper because it ensures that you never get behind on a monthly payment. However, it would still be in your best interest to determine how you disburse your funds at the end of each month. You should have a degree of control over how you prioritize the settling of your bills. The more interesting part is that you might be asked to pay a penalty fee if you later decide that you’d rather send in your monthly payments by check instead of automatic withdrawals.
- Don’t apply for many loans
When you apply for a loan, the first thing that a lender worthy of the name would do is to pull your credit report. The credit report shows your credit score among other things, and it helps the lender make an informed decision about lending you money. The untold part of the story is that each action of pulling up your credit report could reduce your credit score because it suggests that you haven’t been managing your finance properly and are now in need of a loan.
However, many borrowers do not know this and they often send out loan applications to many lenders in a haphazard approach that lacks strategy. Sadly, you can expect your credit score to be significantly lowered if each of those lenders pull up your credit report.
A smarter approach to getting personal loans is to work at improving your credit worthiness and make sure that you’ve satisfied all the requirements for the loan. You can then send an application to one (at most two) lender(s) and you can ask them to pull a soft inquiry that won’t leave a footprint on your credit report.
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