Personal loans are a common thing in the contemporary world. Research indicates that personal loans are the fastest growing loan product as more people are borrowing this type of loan now and then.
It is not for everyone’s wish to take a personal loan. However, circumstances usually play a major role for one to go for a personal loan. People usually take online loans to satisfy their own needs, but some usually misuse the loan for unnecessary wants.
Therefore, before taking a personal loan, you should first consider the gravity of emergency. Many people usually take loans for reasons that can be solved without taking a loan from a financial institution.
In this article, I am going to highlight seven things you need to know before taking a personal loan.
1. Requirements Qualification
Before taking any personal loan, you should know if you fully qualify for the loan. For any financial institution to give you a loan, they ensure you fulfill all their requirements. For you to be eligible for a personal loan you must attain the following:
- You must be at/over the age of loan limit.
- Have a consistent income source.
- Able to provide all your current financial statements.
- You must be an account holder with the institution for a significant amount
These are just some of the requirements before taking a personal loan. Nevertheless, before signing for any loan, you should ensure you fully attain all the requirements of the financial institution.
2. Reasons for the Loan
The initial thing you should ask yourself is what the reason for taking the loan is. Many people take personal loans for unclear reasons. Why should you take a loan to go for a vacation? This is increases your burden because it is not gainful. Loans should be taken with a certain emergency expenditure in mind. It is always a good financial habit to commit a loan to a viable task.
Due to the availability of online loans from different financial institutions, people are aimlessly taking personal loans. You should also consider the type of personal loan you take. A secured personal loan usually comes with security but unsecured personal loan you do not give any of your assets as security.
Therefore, you should be careful when taking a personal loan.
3. Interest Rates
Loans usually come with interest rates during repayments. However, you must take a keen look at different interest rates of loans from different financial institutions. Personal loans usually come with different interest rates. Also, the amount you take usually determines the amount interest rate you are to be charged. Taking a personal loan from your bank will surely get you low-interest rates.
4. What is Your Credit Score?
Many online loan organizations usually consider your credit score. Even before that, it is necessary for you to know your credit score. This is very important for you to qualify for the loan you applied. Your credit score indicates your interaction history with lending institutions. Having a bad credit score means that the lender will impose a large interest rate when lending to you.
5. Plan and Mode of Payment
Many people take up loans but end up not being able to pay the loan. Before you go for a loan ensure you have a plan and a way of paying the loan. Ensure you have a flexible term of payment. Hence, a plan and mode of payment is an important factor before taking a personal loan.
Lending institutions will look at what source of income you possess and use that to calculate your ability in repaying your loan. The amount of loan you can be granted will also be decided by the amount of income you receive. On top of that, you should have consistent income preferably a weekly or monthly pay.
6. Is The Personal Loan Secured?
Before taking a personal loan, do find out if the loan you want to apply for is secured. Any adult should surely know what happens to collateral when you fail to service your loan. You should, therefore, refrain from personal loans that ask for collateral.
Personal loans offered by lending institutions are rarely secured. This is what makes personal loans so popular. The lending institution will take other steps to ensure that you repay back your loan. These actions include reporting you to credit bureaus, which will record your defaulted actions, or they may file for a lawsuit.
Please do pay up your defaulted loan to avoid such inconveniences.
7. What Is Your Relationship With The Lender?
Your relationship with the lender will determine several things about the loan you are going to be granted. If you have borrowed with a lending institution for a significant amount of time, they will grant you a larger amount with lower interest rates. If you kept defaulting on your loans with the lending institution, you would be offered low amounts for your loans, and this will not serve the purpose of leaving you more frustrated.
If you take all the above factors keenly, I guarantee you to have an easy time dealing with personal loans. Also, these will enable you to master positive financial habits. Remember, taking a loan should be a very thought out decision so do not rush yourself into debt unless your life depends on it.