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Tips for Taking a Personal Loan

Posted February 8th, 2010
by PersonalLoans.org Staff

loansPersonal loans can be wonderful for consolidating debt or for making a big purchase. Before you sign on the dotted line, however, there are some specific things you ought to take into consideration.

Here are seven tips for taking out a personal loan:

  1. Shop around. It’s almost never a good idea just to take the first offer that comes. You need to get rate quotes from several sources. You need to understand the fine details of each personal loan offer, too, so that you can correctly compare like offers. You need to know what other requirements may be necessary for each offer, as well.
  2. Rate isn’t the only factor. Yes, the interest rate on your loan is important. You also need to look at what the total repayment will be. A loan might have closing fees, for example, or you may only be able to get a lower rate on a longer loan, which means you’re going to be paying way more in the long run.
  3. Neither is the payment amount. Just because you can afford $200 a month doesn’t mean you ought to take a loan that has a $200 a month payment. That should be your maximum, not your minimum.
  4. Pay attention to repayment terms. If you pay off your debt early, will you be charged? How much? This can vary greatly from one lender to another, too. If there’s a good chance you’ll be paying your loan back early, make sure you know what the conditions will be.
  5. Know where your credit is. Before you make a call, walk into a bank or log onto a personal loan website, know where your credit stands. Check your credit score and get a copy of your credit report. Don’t be surprised by a turn-down, and be ready to leverage a good score into a better interest rate or better terms.
  6. Consider alternatives. If you have a family member who’s willing to loan you money, chances are they’ll charge much less in interest. Consider drawing up a formal loan agreement, however, just to make sure that everyone is comfortable with the arrangement.
  7. Be sure you need it. There’s no sense in taking out a personal loan if you’re going to use it on an extravagance. Instead, take the money you’d spend each month and set it aside. In a year, you’ll have more money and will have earned interest instead of having paid interest.

Photo via Omar Omar

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