Getting a loan isn’t easy and can take time and also a lot of prep – here’s how to not only get one but also at a great rate.
- Ensure that the personal loan offers you the best deal
People will get a personal loan and use it for different purposes. Example, you might go for a personal loan so you can use it in consolidating your credit card debt, investing in a business, home improvement purposes, or just to take a vacation.
It is a good idea to check and see if there are any other types of loans that can serve your needs better. For instance, you could go for a line of credit or take a home equity loan.
Home equities are usually secured by your home, while personal loans are usually not secured, and this will mean the interests rate you pay for the personal loan is higher than that of home equity loans.
- Choose the right lender
Some of the lenders you can expect to give you loans include, banks, online lenders, and credit unions. Each of these options will offer a wide range loans with different interest rates and the terms of loan vary. This is why it is advised to shop around and choose the lender who is able to fit your needs by providing the right terms.
A good example, Perc Pineda, who is the senior economist with the Credit Union National Association, shows that for a loan of $5,000 for a period of two years, the average rate is 9.93% for a bank, which is higher than 9.54% offered by credit unions. You can often get lower rates with a guarantor as it lowers the risk.
- Be careful when it comes to credit card consolation
One of the most popular uses of personal loans is taking it out and using it in paying off credit card debt on more than one card, which consolidates the payments you make into one.
If your motivation is to take the loan and do this, you should be a little more careful so as not end up with a new credit card debt.
- Read the fine print
Make sure you ask for the full disclosure of all the terms of the loan and go through the fine print. The terms of the loan will differ from one lender to another.
Confirm whether the monthly payments and repayments work for you. There are some loans that have a penalty fee for late payments.
The lender is looking for a good way to get a steady stream of interest from the payments you make over the duration of the loan, and this means they can charge you a prepayment fee, or a penalty for paying it off early.
Bankrate.com is the perfect place to shop for deals when looking for personal loans
- Make sure your credit score is accurate
The credit score has a big impact on the interest rate to be paid and the terms of the personal loan.
You can find yourself paying 20% higher because you have bad credit, instead of getting a good 8% with good credit.
This is why it is advisable to ensure your credit score is accurate and also be careful when it comes to matters dealing with the use of credit. Also, there are some personal lenders who usually report to the credit bureaus only when you miss payments, so it is a good idea to ask the lender to report when you make the payments on time. This will improve your credit profile.
- Look out for origination fees
While there will be lenders who seem to offer you lower interest rates, sometimes they will also add an origination fee that will lead to an increase in the interest rate. This is why it is sometimes good to go with a lender who is offering the loan at a higher interest rate but doesn’t add any origination fees.
- Do not take more than what you can afford
You should start by gauging your financial situation before you can start applying for the loan. This will give you an idea of how much you can take on comfortably.
There are some lenders who will give you more than the amount you are able to handle. This means you can easily end up biting off more than you can chew and end up in a debt trap.