Personal loans are an affordable way to finance big purchases. If you are planning on taking out a personal loan, however, you need a repayment plan. Payment schedules can easily overwhelm you, especially if you don't take them seriously. Here are ten questions you must ask yourself to ensure that you can handle having a new personal loan.
How Much Should I Take Out?
Just because you can borrow a certain amount does not mean you should. Know exactly how much you need—you can get small loans of $500 each. However, lenders often offer a minimum of $1,000 to $2,000. Review your finances and determine if you need that loan. If the amount you need adds up to less than $500, it might be better to borrow from friends or family.
How Will I Pay My Creditors?
When you take out a personal loan, the cash usually gets delivered to your checking account. However, if you're using that loan to consolidate debts, some lenders provide the option of sending funds to your creditors directly. Doing so lets you skip having your funds in your bank. You can also have the funds wired to a checking account if you need the money for something other than debt repayment.
What Are the Repayment Details?
Typically, debtors must pay the loan company within 30 days. Companies also usually prefer monthly installments within a set amount of time. Lenders usually give debtors between six months and seven years, depending on the loan granted. The interest rate you pay and the size of the monthly payments will affect the length of the loan.
Besides the loan amount and your term, your credit score also affects your interest rate. Rates can be as low as 3.49 percent and as high as more than 29.99 percent. If you have a good credit score and a short repayment term, you will get a lower interest rate. The latest data from the Federal Reserve puts interest rates for 24-month personal loans at an average of 9.63 percent.
Does This Loan Have Additional Fees?
Most personal loan lenders do not charge fees on top of the interest. Some lenders could have a sign-up or origination fee, a one-time charge that the lender uses to pay for processing and administration costs. Some lenders have a flat rate for origination fees or charge one to five percent of the loan as the fee.
An origination fee is a one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs. It's usually between 1% and 5%, but sometimes it's charged as a flat-rate fee. For example, if you took out a loan for $8,000 and there was a two percent origination fee, you would get $7,840, and $160 will go to the lender.
How Is My Credit Score?
Besides knowing how much you need, you should also be aware of your credit score, so you know whether you qualify or not. Most lenders want applicants with good credit scores. Online banks, in particular, put much emphasis on an applicant's credit score.
You could get a favorable deal if you have an existing relationship with a bank. If an institution knows you pay bills on time and have honored your past loans' terms, they will be more likely to grant your application.
Do I Have Other Options for Securing Funds?
Besides personal loans, you could also look at balance transfer cards. Some cards have a zero percent annual percentage rate, letting you pay no interest on your loan for up to 20 months. Taking advantage of offers like these will help you save a considerable amount.
How Soon Can the Lender Deliver Funds?
Some lenders deliver on the same day of approval. Meanwhile, others need up to ten business days to process the loan and provide the funds. If you need quick access to the money or prefer quick delivery, you need a lender offering same-day loan approval.
Will This Loan Affect My Credit Score?
Maintain your credit score by focusing on credit utilization and on-time payments. Using a loan to pay off your debt will cause your credit score to increase. However, when you have paid off your loans, keep your spending under ten percent of your available credit. Doing so will ensure that you keep your good score.
Like any financial product, personal loans are most helpful to debtors with a plan. If you ask the above questions about your financial situation, you can assess your options without affecting your credit score.
At First Finance, we offer various types of personal loans in the Davidson area. Our clients get the best deal possible—you get no payday and title pawn loans, hidden fees, or charges with us. Apply now or contact us for inquiries!