Top 3 Things You Need To Know Before Applying for a Personal Loan
Written by
Cindy Lamothe
Edited by
Brendan McGinley
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Thinking about getting a personal loan? You’re not alone. Whether it’s for consolidating debt, covering a big expense or simply having a financial safety net, personal loans have become a popular option for many people. They can be a smart tool when used wisely — but before you hit the “Apply” button, there are a few things you’ll definitely want to know, including why you need a loan rather than using other funding methods.
Knowing what to expect ahead of time can save you from surprises and make the whole process a lot smoother. Here are the top things you need to know before applying for a personal loan, so you’ll feel more prepared, confident and ready to make the best decision for your financial situation.
Know Your Monthly Payment
According to U.S. News, the average personal loan debt per borrower is $11,652, which is up from about $8,758 five years ago.
Knowing how much you will have to pay on your loans on a monthly basis before you even make an application is very important, according to Jimmy Fuentes, a Consultant with California Hard Money Lender.
“It is sometimes easy to gloss over this point, but it is an important consideration in ensuring that your budget can afford the loan,” he said.
Taking out a personal loan may appear as a positive step, but Fuentes explained that failure to commit to making the monthly repayments can put an unnecessary burden on your finances.
“Make sure to add the principal and the interest payment into your budget so that you do not fall into a sudden shock later,” he said.
Consider Interest Rates and Terms
The terms may vary according to the interest rate as well as the total cost to the loan, according to Fuentes. People are often lured in by an attractive monthly payment without realizing how much interest they end up paying in the long run. By the time it’s apparent, they’re trapped in a loan that costs more than they had planned on taking.
Fuentes explained that lenders consider many variables, including, but not limited to, your credit score, income and how much you currently owe into the calculation of your rate.
“It is good to compare rates offered by various lenders,” he said, “as well as to shop around before making a decision.”
Clearly Spelled Repayment Plan
Before taking a personal loan, Fuentes advised you must have a clear repayment plan.
“You might be betting over your head without a strategy of how to repay this,” he said.
Think about the time it may take you to repay the loan, whether you can pay early or whether your earnings are steady enough to match the loan. Such a plan will make you feel more confident and prevent avoidable surcharges, like late fees and interest.
The Bottom Line
To create a better decision regarding borrowing, it’s important to take time to consider these factors.
By knowing the amount you’re paying each month, realizing the true overall cost of the loan and having a plan for repayment in place, you can be sure that a personal loan works as a positive tool rather than a debt burden.
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