Denice R. Preston
Personal loans are the most sought-after type of loan. These loans are very popular because of several factors. First, personal loans are not restricted in terms of their end use. A personal loan can be used for whatever purpose you choose. Personal loans are most commonly used to finance long-term expenses, such as long-term vacations, family functions such as weddings or birth ceremonies, down payments for houses or cars, paying long-standing credit card debt, or renovating a home or updating interior furnishings. Personal loans are also very popular because they are unsecured loans. The borrower doesn’t need to provide collateral or security to the lender in order to obtain the loan. The documentation required to obtain a personal loan are also significantly less than any other loans such as a home loan or car loan.
Although applying for a personal loans is easy, there are some things you need to know before you apply. Here are some tips to help you when looking for a personal loans.
1.Before you apply for a loan, assess your needs
Before you apply for a loan, consider the purpose of the loan. Each loan requires you to make monthly EMIs over the term of the loan. This will add an additional expense to your budget. It would be best if you evaluated whether the loan you take is being used for a productive purpose. You might have outstanding credit card bills that you need to pay but are using a personal loan to fund your vacation. This will only lead to more debt. You must ensure that your loan money is used productively.
2.Do Your Research
Do your research before you accept a loan from any lender. Do your research before you accept a personal loan offer from any lender. You can shop around to find a lender that may offer a lower personal loan rate and better terms. You should also ensure the loan you select suits your needs.
3.Personal loans & credit scores
Your credit score could make or break your chances to get a personal loan. Lenders are more at risk because these loans are unsecured. Lenders will prefer applicants with a better credit score because this will reflect the borrower’s ability to repay the loan. Your credit score is a measure of your repayment ability. You will have a better chance of receiving a personal loan at a lower interest rate with good terms if your credit score is 750 or higher.
4.Low credit score equals higher interest rates
If you have low credit scores and are able to find a lender willing to lend you a personal loan for you, expect to pay a higher interest rate. Low credit scores are a red flag lenders want to avoid when considering borrowers. It indicates poor repayment ability or a history of default. You might also be offered a loan with a lower amount than you requested. Your terms may be more restrictive if you apply for a personal loan.
5.Compare Interest Rates
Personal loans are notoriously more expensive because there is no collateral. Compare interest rates with multiple lenders before you apply for a personal loan. You will be able to determine which lender offers the best rate and terms.
6.Check Your Eligibility
Check with your lender before you apply for a personal loans. This is especially important if you have questions about your employment and income. Lenders must consider income when approving personal loans. It is a sign that the borrower is financially capable of repaying the loan.
7.Ask for Pre-payment
Some lenders permit borrowers to prepay their loans with an additional fee. When you finalize a loan with a lender, be sure to ask about loan prepayment. Prepayment of a loan can help you save a lot on high-interest rates that you would otherwise have to pay.
8.Do not apply for multiple loans
Your credit score can be negatively affected by applying to multiple lenders for loans in a short time. This will make lenders think you are in desperate need of funds and won’t be able to repay the loan. If you want to borrow credit in the future, this will cause your credit score to drop.
9.Double-check your credit report.
You should thoroughly review your credit report before you apply for a personal loans. Check that your credit report contains accurate information and matches your repayment history. Any error in your credit score calculation can negatively impact your score, which could lead to the rejection of future credit requests. If you notice a discrepancy in your credit score calculation, make sure to correct it immediately.
10.Wait 6 months before re-applying
If your loan application is rejected by the lender it is advisable to wait at least six months before applying for another loan. If your loan application was rejected because of poor credit, you could improve your score by paying your outstanding bills within the next 6 months. It is usually futile to contact other lenders if your loan application has been denied. They are likely to decline your request. Multiple rejections can lead to a drop in credit scores, which could be better.
