14 Key Things to Consider Before Getting a Personal Loan
Thinking about applying for a personal loan? Do you think a loan for general purposes might help you get through some troubled times? If so, following are 14 key things to consider before you take that step:
- Credit Score- What’s you general credit worthiness? Lenders are really scrutinizing credit scores, debt to income ratios, income and histories of paying bills on time. The higher your credit score is, the better.
- Collateral- If you have something to secure your loan with—a home, a car or even a boat—it will be much easier to receive a personal loan.
- Taxes- Interest on an unsecured personal loan is not tax deductible. You may be better off with a home equity loan or line of credit if you want a deduction.
- Use- What do you want to use the money for? If you sense that his may just be a temporary fix and that there’s a possibility you might be in a worse financial situation later, you may want to reconsider the personal loan.
- Repayment funds- Make sure you have the income to repay the loan. Consider your job situation. Do your future employment prospects look promising?
Sometimes, people can get into a morass of loan payments until payback is impossible.
- Source- Consider where you’ll get the money from. You could go online or brick and mortar to a loan company, bank, credit union, payday loan company or get a credit card for the personal loan.
Also, consider what the source will consider about you—the three C’s. Character (What kind of a person are you?), Capacity (What can you afford?) and Credit (How well do you meet your financial obligations?)
- Affordability- Think about whether you can afford the burden of a loan amount to pay each month. How much will it impact your other payments? Will the payment be easy to make each month? Scour your finances to see if another loan you’ve been able to carry will be paid off. You can use that money to pay the new loan. If you happen to get a raise, then you’ll actually be ahead.
- Loss- If you get a secured personal loan consider the worst case scenario. For example, if you take out a title loan where your car is used as collateral what will happen if you can’t repay? If you’re car gets repossessed what will that do to you? Will you be able to get to work?
- Rates and Terms- Check out current rates and loan terms. Even a small nudge up or down in rates, can significantly impact a payment. The sooner you can pay the loan back, the more your payment will be but the sooner you’ll get rid of the payment.
- Compare Sources- All loan sources are not created equal. One bank may be offering special rates on loans. Your credit union may have better rates than a loan company.
Check the internet. It’s easy to compare sources on the there.
- Consider other sources- Would a family member or friend be willing to lend you the money in return for a diligent repayment schedule.
- Need- Ponder whether or not you really need the money. Going into debt may not be what you need right now.
- Economy- Think about the state of the economy. It may be better to wait for a favorable economic climate before borrowing more money.
- Habits- Give a good hard look at your spending habits. Are you good with money? Are you diligent about repayment? Do you look good to a lender who’s looking at your Character, Capacity and Credit?