Personal Loans: Everthing You Need To Know

This was a piece I wrote to "un-scary" the terms 'credit' and 'loans' for people who are intimidated by these topics.

Sounds scary right!?

I used to fear the word too. That is until I understood it.

Credit can come in many forms - each one providing for different needs. Personal loans are a form of credit that can help you make a big purchase or help you turn several loans into one.

Of course, they can also be used to finance many other things. Want to start a business? Need to pay medical bills? Need to repair your home? These are all things that personal loans can help you with. However, it is important to understand personal loans before acquiring one.

Credit providers will determine whether you are eligible for a personal loan by looking at your credit report:

Lenders will specifically look at your debt-to-income ratio. In other words, they will take a look at your monthly debt payments and they will have a look at your gross income.

Lenders will also look at how you have paid off your debts in the past to see if you have a good credit history.

It is important for you to know what interest rate you are getting and whether it is a fixed or a variable interest rate.

The dramatic increase of variable interest over time can get astronomically expensive.

Your local government should have a website to research the credit provider. You can use it to ensure the trustworthiness of the lender that you are considering.

Personal loans are unsecured, which means that you do not have to use an asset as collateral for the loan.

The good news is, if your credit repayment history is good, you can get a lower interest rate for a longer period than you can on a credit card.

Many people find that a personal loan is an opportunity to simplify their finances. They now no longer have to make payments to 5 different lenders, but only one payment to one lender.

If you make sure to make your payments on time, it can help you build your credit score. Seeing that future lenders will check your credit history to see how responsible you have been with paying your loans back, this can help establish a good credit history.

Transaction fees, late payment fees, and origination fees are among the top disadvantages of a personal loan.

If you fail to make your payments on time, this can affect your credit history negatively and make it harder to apply for loans in the future.

Some lenders may not allow you to make extra payments or pay your loan off early. On the other hand, many lenders have no prepayment penalty. Be sure to confirm this before you commit to a loan.

We all need a little financial help sometimes. A personal loan can be a way to help you pay your debt off faster. For instance, consolidating debt into a personal loan may help to reduce your interest, therefore making the monthly payments less.

It can also help you pay for that emergency hospital bill.

It is important to consider the pros and cons of personal loans. Do your research. Determine what will work best for you. Understand what you can truly afford to pay back and create a plan to pay the loan back as soon as possible.