Whether taking out a secured or unsecured personal loan, a borrower might benefit from following the proper steps to make the process successful. “Successful” means receiving approval and being able to repay the loan without high costs. Here are some tips and insights to consider when applying for a personal loan.
Perform a Credit Check
Approvals and interest rates often hinge on a person’s credit history. Reviewing your credit history might provide insight into which lenders to approach. Also, the information might determine paths to improving the score for better loan deals. Checking a credit report might uncover inaccurate information that hurts the score. You can’t fix false info if you don’t know about it.
Review Interest Rates and Terms
When you apply for personal loans, always look at the interest rates and terms. Doing so reveals how much the loan may eventually cost since a high APR would make the loan more expensive. That’s not all. As Lantern Credit points out, “Your annual income and the amount you wish to borrow are important, too, among other personal financial factors.”
Use the Loan for Important Things
Depleting all your cash reserves and savings probably would not be a good idea. Loans allow you to manage purchases and how to pay for them. Perhaps a car requires significant repairs, or unexpected medical expenses arise. And why pay upfront for moving and cleanout fees? A loan could cover these and other unavoidable costs.
Have Everything in Order
Loan applications require providing personal and financial information for processing. Expect to provide supporting documentation to establish what appears on the application. Have your identification and pay stubs ready to submit if asked.
And consider it advisable to avoid making mistakes that could hurt more than help.
Avoid Borrowing for Luxury Purchases
Taking out loans to make unnecessary purchases, such as vacations or the latest high-end consumer electronics, might cause financial chaos. If you cannot afford these things either by paying in cash or financing, don’t buy them. Otherwise, a path toward bankruptcy courts might be set.
Make Loan Payments on Time
Late payments could lead to penalties that drive the overall loan cost up. Plus, late payments appear on credit reports and bring down scores. Future approvals and low APR rates could prove elusive when you don’t honor obligations to pay on time.
Don’t Borrow Too Much
Although the loan approval could be for more than you need, no hard rule says you must borrow that much. Borrowing too much may lead to excessive, unnecessary purchasing and a possible debt trap.
Don’t Rely on Consolidation
Now, taking out a debt consolidation loan could be a wise decision. Putting several high-interest rate loans under the umbrella of a single loan could save money. However, repeatedly paying off balances with a new loan may eventually max out available credit. At some point, a borrower must become responsible and pay what he or she owes.
Secured and unsecured loans could help a borrower who uses the funds wisely. Avoid common pitfalls when applying to make the process less costly.