If you are like many families struggling with money these days, you have been busy paying the minimum amount on several monthly bills, putting off essential home repairs due to lack of funds, and taking the family on vacation is out of the question.
Struggling with expenses that eat up your spare cash and leave you broke. What if you could clean up all those straggling expenses once and for all?
Maybe it’s time to start thinking about applying for a personal loan. How wonderful it would be to have enough money to eliminate those annoying bills whose balances never seems to change, tackle that home improvement project you started and still have a enough left to take a much-needed vacation.
THE TWO TYPES OF LOANS
First, there are two basic types of personal loans – secured vs. unsecured. Which one you qualify for will depend mainly on the amount of money you’re asking for and your credit rating. When you have decided how much you want to borrow, the bank will consider that and your credit and make you an offer.
Secured vs Unsecured Loans
A secured loan is a loan that is backed up by some kind of collateral. That collateral will be used to ensure that the loan is paid back promptly. Secured loans are usually reserved for borrowers with bad credit or those who are establishing credit for the first time. Expensive loans would be secured, such as for a mortgage or new car.
An unsecured loan is a loan that is not backed up by collateral. Instead the lender is trusting that you will pay the loan back as promised. These loans usually require a credit check, so they are tougher to qualify for. Unsecured loans are riskier for the lender because they end up with nothing if it’s not repaid. That means higher interest rates which can end up being quite costly. These loans tend to be for smaller amounts of money such as with personal loans.
Now that you know how much you can borrow and whether it’s secured or unsecured, there are some important things you need to keep in mind. These may seem like small details, but they can turn a simple loan into a financial disaster if they’re overlooked. The more knowledge you arm yourself with the better, so here goes:
Request a copy of your credit score
Every time you inquire about a loan and a credit check is done, your credit history gets ‘flagged’. Too many of these can lead to an inquiry into your credit history and may also lower your score a little bit each time.
Check interest rates
Fixed interest rates are the easiest to work with. The rate never changes, making it easy to keep track of payments and stay on budget.
Consider conditions of repayment
Along with the amount of the payments and the period of the loan, you want to ask if there are any penalties for paying more than the amount due each month or for paying the loan off early as these penalties can be rather stiff.
Look for affordable payments
Higher payments for a shorter term loan may sound manageable now, but it may cause trouble later should you experience financial difficulties.
Last but not least, be sure you shop around for the best rates and terms. You can get a personal loan at banks, credit unions and online. Every lending company sets its own guidelines and the terms of the loans will vary with each, so visit a variety of lenders until you find the loan that’s best for you. With so many lenders competing for business, you’re sure to find exactly what you need.