Guide to understanding personal loan options in 2015
Personal loans can be an excellent way to secure the funds you need for just about anything. There are lenders out their offering personal loans to people with all types of credit scores, from extremely poor credit to excellent credit. Those with poor credit can expect to pay an absorbent amount of interest however.
There are two types of personal loans, signature loans, which require just your promissory signature to repay the loan in full and on time each month, and secured loans which use collateral. The benefit of secured loans is that you will receive a better interest rate every time, because you are putting up collateral to back the loan. If you default on the loan, the bank or lender can take possession of your collateral. Unsecured loans will have high interest rates, even with excellent credit your rate will still be higher than what it would be with a secured loan.
There are a few things you should do before pursuing a personal loan. The first being that you should pull all 3 credit reports and know where you stand. You will want to check it carefully for any errors, as errors can easily effect your credit score, in fact over 20 percent of all credit reports contain errors that negatively effect their credit scores. You should dispute any errors you find before applying for a personal loan. You will also want to check your FICO score to see where you stand score wise, as this will directly effect what interest rates you qualify for.
When seeking a personal loan, never jump on the first offer you find. Instead you should rate shop. Rate shopping for loans is the process of finding the best possible interest rates. You also need to be mindful of the terms of any loan you are applying for. You should do the math on any loan and make sure the payments can be met, while still leaving you breathing room with your budget. If you do not have a budget, you should make one, before applying for any type of loan. Having a budget in place and sticking to it will help you to avoid anything unpleasant like late payments or defaulting on your loan.
If you do need a personal loan, I would still advise you to look into any alternatives you may have. Taking out a personal loan is a long lasting commitment on your part. Your cash flow will be limited during the lifetime of the loan that you take out. Many people end up in a worse financial situation then before they took out a loan, so try not to become a part of that statistic.
You should also read the fine print of any loan or financial product before signing for it. There are often hidden fees that borrowers are unaware of, and the loan officer never discloses, leaving them buried in the fine print as an “I gotcha” moment. If you do not understand a listed fee or why it is there, ask your loan officer. The amount you pay on a loan includes more than just interest, it also includes the fees you pay. One fee to avoid at all costs is a final ballon payment. Some lenders also charge a fee if you pay off your loan early.