At some point in your life, you may end up in a situation where you badly need a personal loan. You might need instant cash for unexpected situations like a medical emergency. Weddings, birthday parties or a downpayment for a car purchase may also require you to file for a personal loan. Once you consider your application, you will be overwhelmed by the number of personal loans available. The very first step you will need to take is to find the right loan that suits your needs. You don’t want to get the wrong loan or you may end up paying unnecessary fees and interests.
Personal Loan Options: Which One is Best for You?
What are Personal Loans?
Personal loans are “unsecured” loans since they’re not supported by collateral like your car or your home in the case of a mortgage or an auto loan. Loan companies will work with your credit rating to help evaluate if they could give you a personal loan including interest rate.
Contrary to what others perceive, personal loans can be used in a multitude of ways. It can be used to fund a small home business or to fund a dream vacation. Medical emergencies can be your reason behind a personal loan application. However, you can also apply for a loan for planned medical procedures like a nose lift or a bust augmentation. As the name implies, personal loans can be used for a wide array of reasons, personal to your needs as well as your wants.
How do Personal Loans Work?
A personal loan enables you to fund personal acquisitions, merge financial debt or for investment reasons. The funds are paid to you either through lump sum or in the form of a credit line. The term of repayment could be anywhere from 1 year to 7 years. Although personal loans are by nature non-secured or non-collateral loans, you may still be asked to offer some kind of collateral depending on your loan purpose. Personal loans are usually offered from $1,000 to $80,000.
What makes a particular type of personal loan the best type of loan for your current needs is its relevance to your current financial dilemma or personal wants. For example, it would be ideal to get a 95% LVR home loan instead of having to apply for a personal loan that will cover 20% of your home loan deposit. Do the math or use a loan calculator to identify whether a personal loan is indeed the most cost-effective option compared to a home loan, or a short-term loan from a lender. Financial calculators help you better understand which rates and payment terms are indeed cheaper and more convenient for you.
Another example would be a cosmetic surgery. You can charge your credit card for a cosmetic operation. However, it would be ideal to compare if charging it on your card would be indeed cheaper, preferably in the long run, compared to applying for a personal loan to fund your operation. The key to landing with the best personal loan is comparing. Always do your research and compare to get the best options possible for you.
Here are other simple tips on how to pick the right loan suitable for your needs.
Compare Interest Rates
Compare interest rates. This is a good benchmark to help you decide which loan is right for you and find out which one is competitive. You will want to look at the loan’s comparison rate because this will give you an overview of the total cost plus its fees and charges.
Know the terms and conditions. The terms and conditions are also among the deciding factors if the loan is right for your needs. Read about the terms and conditions of the loan from the lender’s website and make a comparison. Identify if such loans include on the spot interest deduction or other fees that would make it more expensive compared to a different loan that comes with a higher interest rate but no additional fees for processing. A Loan Repayment Calculator may help you see the difference.
Flexibility of Repayment
Most loan companies give you the option to pay weekly, fortnightly or monthly. This is usually done to adjust repayments to your pay schedule, however, not all loan companies may follow this. Also, you must try to find out if you can make extra payments without incurring penalty or restrictions. It also helps to find out if you have the option for early payment before the term ends. Some banks and lenders welcome advance payments too. Such payments can help you pay for your loan faster and save a few hundred dollars in interests along the way. This Extra Repayments Calculator can help you compute how much you can save for paying advance amounts for your loans.
You will want to find out how easy or simple it is to manage your loan. Most loan companies offer online account management but not all of them do so this is one factor you want to consider. You may even be asked to personally pay the loan instead of utilizing a direct debit. Know the loan company contact information and mediums of customer service – email, chat, phone, or social media.
Read testimonials and reviews about the lending company or bank you are interested in applying for a personal loan. Do they have friendly and attentive customer service? Is communicating with their clients one of their best assets? These are a few factors you should consider adding in your criteria for finding the right personal loan company or service for your need.
A Loan Within Your Means
Determine whether the actual monthly payments will be feasible on your monthly budget. You can use a personal loan repayment calculator which is widely available online and should be available at your bank or lender’s website to see what actual repayments you should be paying each month. This allows you to plan a schedule and to create a monthly budget that works for the whole family. A Budget Planner might help you identify if your financial capacities, at present, can handle repaying for a personal loan without having to affect your regular personal finances negatively.
Ensure that you use the funds to serve its purpose. Some financial loans, particularly secured personal loans, have limitations on how you should use the loan. For instance, should you get an auto loan, you can only spend the funds on a car or vehicle purchase and that the vehicle has to be eligible. In the same way, some loan companies will not likely allow you to use personal loans for business uses. Set your criteria, get as many options manageable for you and then compare. Following a process before jumping into an approved personal loan for you saves you from unnecessary fees and interest rates you might incur in the future.