9 Critical Questions to Ask Before Getting a Personal Loan
If you’ve never applied for a personal loan before, it is vital that you do your homework and ensure that you get the right product, just like you would do when you’re buying a big ticket item from the store. I mean, personal loans are basically a product, albeit a very different kind than a car, for example, right?
There are numerous online sources, such as Market Review2 and Money Crashers3 that can help you get to grips with the basics of personal finance, and personal loans in particular, if that’s what you’re interested in, and you should certainly make good use of them. In the meantime, however, here are a few pertinent questions you should ask yourself before getting a personal loan:
Why Do I Need a Personal Loan?
The number one thing you should ask yourself before you make that application is why you need that loan in the first place. If you know exactly what it is needed for, it will help you to determine exactly how much you should borrow over how long a period, or even whether you should get a loan at all.
It’s unlikely that you’ll be asked your reasons for applying, but some loan companies, especially banks, and especially when larger sums are involved, will ask you why you want the loan, and if you don’t have a good answer, you could end up being declined, so there is that too.
How Much Do I Really Need?
The thing about personal loans is that you have to pay interest on them. I know this is an obvious one, but it is one that too few people think about when they’re applying, but they really should because it can help them narrow down how much they borrow. Another thing that will do that is (obviously) working out how much you actually need so that you don’t end up borrowing too much needlessly and accruing a lot of interest that you could have done without. So, sit down and look at your finances and what you need and then work out to the cent what you need to cover that. Apply for that amount, and that amount only ( no adding a few G’s extra so you can have some fun) and your debt will be much more manageable.
How Much Can I Actually Afford?
This is clearly a crucial question that you should not neglect to ask yourself before you apply for a loan. You need to think about how big that monthly instalment will be and how much interest you will accrue4, and you need to look at your accounts/ cash flow and see if you can actually afford it. Taking out a personal loan, when you know you can’t afford the total repayments, or you know that doing so will be tight is never a smart move, but it’s a move that’s so easily made by so many people who simply don’t bother to ask this question and review their budgets for a response.
How Long is the Repayment Period?
Some loans you pay back the next month, some you can be paying back for years, and you need to know which you are getting yourself into if you want to be sure that you can pay them back.
When looking at the length of a loan, you should not necessarily be fooled into thinking that 60 month loan is the better option because your monthly instalments will be lower – you should take into account the fact that you’ll probably be paying more interest over that period too – so it’s never clear-cut what you should do but if you do your homework and you behave sensibly, you should be able to work it out and get the best deal for you. Just remember, check the interest!
Is My Credit Good?
You should always find out what your credit score is before you apply for a loan because if you do this, you can apply for lenders who are more likely to be favorable to people in your situation. By doing this, you’re more likely to get accepted, and you won’t end up potentially damaging your credit score further.
Would a Co-Signer Help Me and is It Worth It?
Having someone who is willing and able to co-sign your loan 5will increase your chances of securing a personal loan, especially if you don’t have the best credit history. However, if things go south and you’re unable to make your repayments, would they really want to be responsible for your debt? Would it ruin your relationship? Is it worth the risk? Unless you desperately need the money and you really are confident you can repay the debt, it probably isn’t a good idea to ask someone to be your co-signer.
Can I Get a Better Deal?
This should be really obvious, but so many people apply for a loan with the first company they find or the bank that they hold an account with without ever looking elsewhere. It might end up working out for them, but it probably won’t. Why? Because there are literally thousands of personal loan companies, so it’s almost guaranteed that there will be one who can do you a better deal. Your job is to seek out and compare as many of the companies you think might be right for you as you can before you make a final decision.
Is the Lender Legit?
Finally, once you’ve worked out how much you can afford and what best options are, you should ask yourself if the lender you’ve chosen is actually legitimate. There are so many lenders out there who, if they aren’t downright fake, operate in a manner that is not befitting of a professional company. The last thing you want to do is end up in debt with a cowboy who will rip you off, put the pressure on and make your life a misery, so check out reviews, ensure that the paperwork is crystal clear and generally just try to get a feel for the company. If you’re uncomfortable don’t sign anything and don’t get the loan.
Ask these questions and act upon the answers and you should have no problem when it comes to personal loans!