Personal loans can be incredibly helpful, especially when you have an immediate financial need. However, you can make your loan profitable too if you choose wisely.
Here are 21 important things you need to keep in mind when you are looking for a personal loan service.
1. Loan Interest Rates: the interest rate applicable on your personal loan will impact the cost of the debt you are about to incur. The rate of interest largely depends on the type of loan, secured or unsecured. An unsecured loan is naturally more expensive because the borrower does not provide any security for their debt. However, a secured loan is cheaper because it is obtained against an asset as a security.
2. Repayment plan: Apart form making regular payments towards your loan, it is also helpful if your lender allows you to make large chunks of payment so that it can be paid ahead of time. Some lenders may give you that option without penalizing you with a prepayment fee.
3. Check the fees: the best way to choose a competitive personal loan is to balance the fees against the applicable interest rate. Some lenders can charge you huge processing fee that can make the low interest rate benefit inadequate.
4. Customer support: This is the most important consideration when choosing a personal loan service. The last thing you want is to work with a lender who does not provide you proper after sale service. You should not only be able to contact the customer service department through email, call and chat, but also have access to your loan details online. All your queries and concerns must be addressed promptly and accurately at all times.
5. Choose short payment term: long term loans appear attractive at the face of it due to lesser repayment amount. However, they are in reality more expensive because you are paying the interest for a longer duration. Short term loans look expensive but are much cheaper and are paid more quickly.
6. Ask about additional charges: if you thought that processing charges are the only extras in your personal statement, then you are wrong. Other charges can include foreclosure, late payment, bounced payments etc. Make sure you ask about all these charges before taking the loan.
7. EMIs: you should clearly know how much you are supposed to pay each month towards your loan. Needless to say, loans that come with lower EMIs are more affordable and practical in the long run.
8. Relevance: You can take a personal loan for all kinds of individual requirements. However, make sure that you fully assess your need, the loan amount and the repayment tenure. All these factors will help you choose the best personal loan service.
9. Shop around: the best way to find a competitive loan is by shopping for quotes. Ask various lenders to send you a quote, then compare all the charges, fees and interest rate to make an informed decision.
10. Explore other possibilities: While personal loan is meant to help you during those emergencies, try to ask your friends and family members first. It is after all an expensive debt that can have serious implications if you do not repay diligently. If possible, try to secure an interest free loan from your family members and pay them back promptly.
11. Select the right lender: best personal loan service has a lot to do with who you take the loan from. From online lenders to banks and credit unions, you should evaluate all the lenders and then make your decision based on which loan fits your budget and needs.
12. Honor the purpose of personal loan: Most people take out personal loan to pay off their credit card debts. Having more than one card and then consolidating all the balance to make one payment is usually the motivation to apply for the loan. However, it is your duty to use it for the intended purpose and not squander the high interest money away.
13. Educate yourself with the fine print: Always ask your lender for a full disclosure of your loan terms. There could be charges and fees that are not clearly discussed at the time of application. Reading the fine print is absolutely crucial to make a mindful decision.
14. Check your credit score: this is important because your credit score plays a huge role in determining your rate of interest. Low credit score will mean a high interest loan and vice versa. So make sure that your score is accurate in your credit report.
15. Don't bite more than you can chew: Before you apply for a personal loan, clearly assess your needs and only take out as much as you need. You must have sharp understanding of your financial needs to make the best use of a personal loan.
16. Automatic withdrawals: Some lenders ask borrowers to opt for automatic withdrawal arrangement to pay monthly payments towards their loan. Sometimes they may even levy a fee for check payments to discourage borrowers to choose any other mode of payment. So be sure to check about electronic clearance and associated fee if you want to pay by other means.
17. Have a contingency plan: Since personal loans can go on for long, depending upon tenure, it is always s a good idea to have a plan incase your repayments fall into some kind of financial difficulty. In that case, check if your lender is open to arbitration should it come to that.
18. Consider becoming a co-applicant: If you know someone with a sound financial standing and a good credit report, then ask them to be your co-applicant on the loan. This could help you bridge the gap, if any, in your lack of credit history.
19. Take loan against a collateral: taking out a loan against an asset can get you cheaper interest rates and more flexible payment terms. If you have a poor credit report, then balancing that with a collateral can make your application stronger and lesser risk for the financial institutions.
20. Online loan: if you have no credit history, then opting for online loan is your best bet. They are not only more lenient but also give you much higher probability of securing a loan.
21. Checkout peer-to-peer loan options: these days, a system of social lending has come up where applicants are chosen based on their credit score and can borrow from wilful lenders. The interest rates are determined on case-to-case bases and loan is granted for up to 3 years.