Personal loans are generally unsecured small loans that are offered at low-interest rates to consumers with a good credit score. But they aren’t always the best solution for everyone. In the end, it’s your unique financial situation that will ultimately decide whether taking a personal loan is the right move for you.
In this article, we ask you 6 critical questions, the answers of which will help you in making the decision.
#6) Why do you need a personal loan?
Are you eager to purchase a big-ticket item? Are you in a financial emergency? Personal loans can help. They are flexible loans which can be used for any purpose you find appropriate. A personal loan can cover these expenses and much more:
- College or other educational expenses
- Wedding or funeral
- Consolidating your debt
- Paying off your credit card
#5) Where you can get a personal loan?
Your bank is probably the first place that comes to your mind when you think of where to get a personal loan. But, banks are not the only lender that offers personal loans. There are more options such as online lenders, peer-to-peer lenders, fintech startups, that offer personal loans.
Fintech startups like MoneyTap are relatively new in the marketplace but have managed to take the industry by storm. They offer easy and quick loan approval along with great personal loan interest rates.
#4) Have you compared the personal loan interest rates in the market?
Once you research personal loan offers from various lenders, don’t forget to compare the personal loan interest rates to ensure that you get the lowest interest rate and better loan terms.
#3) Are you aware of the various costs associated with personal loans?
There are various costs like prepayment fee, processing fee and late payment fee associated with a personal loan. Before borrowing a loan, consider these fees and get a clear estimate of how they impact the overall cost of the loan.
Being aware of the fees helps you in managing your finances better and that enables you to decide whether the loan is affordable.
#2) Do you have a good credit history?
Since a personal loan is collateral-free, your credit score is given importance while determining the interest rate.
A low credit score indicates bad debt management and may get your loan application rejected or if approved you may have to pay an extremely high-interest rate. A good credit score of 750 and above ensures a low-interest rate and best loan terms.
#1) Have you planned for your loan repayment?
It’s always a great idea to prepare for repayment before you borrow the loan. Ensure that your income is enough to repay the loan. Also, consider your living expense and other financial obligations before applying for a loan.
While a personal loan may be a good option if you need extra cash for a specific purpose, it is still a debt you are putting yourself in. So, consider the crucial questions mentioned above before you decide to go ahead; otherwise, you may end up feeling trapped.
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