How do you choose among the best personal loans lenders that are available? There are many situations in which you may need a personal loan. It can help you in any number of situations where you need cash quickly. You might need to borrow money to pay down consumer debt, to cover medical bills or to fund educational expenses. Maybe you’d like extra money to pay for a once-in-a-lifetime vacation, an engagement ring or a fairy tale wedding.
Before you submit your online application for the best personal loan you can find, there are three things you should know about taking on unsecured debt.
1. Some expenses shouldn’t be financed through a personal loan.
We’ve all heard the saying, ‘just because you can doesn’t mean you should’. The best personal loans come with very few strings attached, and you can generally use the money for just about anything. But you may end up regretting the loan if you haven’t carefully thought through how you will manage the debt. Loans for consolidating debt may be excellent paths to reducing your overall expenses, but other uses of borrowed money could actually set you back financially. Here are some questions to ask yourself about your proposed purchase to help decide if it’s worth going into debt for.
Does it come at a good time in my life?
As a younger person with the likelihood of increasing earnings as you advance in your career, it might make sense to borrow now. If you’re nearing retirement, however, you probably don’t want the extra debt to follow you into your golden years. Finance expert Kevin O’Leary says that you should have all your debt paid down by age 45 in order to accrue enough money to retire comfortably.
Will what I’m buying have any lasting value?
If you fall on hard times, having an asset that can be sold for cash can be valuable. A vacation or event like a wedding or anniversary party will end and you’ll be left with only fond memories.. and, of course, the debt.
Roughly three-quarters of newlyweds go into debt to finance wedding bills, which can impact the family budget for years. Financial experts suggest setting a wedding budget that includes two or three priorities, and reducing expenses on everything else. If you can, save for your wedding and limit your costs to what you and your family is able to contribute.
Will the money I’m borrowing improve my life and future earnings?
Taking out a loan to pay for education, a career certification, additional training or starting a business may pay for itself by increasing your paycheck in the months and years to come. Data from the U.S. Bureau of Labor Statistics shows that those with a professional degree earn the most — triple that of those without a high school diploma — and have the lowest unemployment in the job market.
Could the purchase I’m making have hidden costs?
Once you take out a loan for a boat, for example, you still have ongoing expenses like mooring fees, storage, transportation, fuel and maintenance. Financial site Mint estimates that you’ll pay roughly $358 a month just for these additional expenses, on top of the loan payment for the boat itself. If what you buy with best personal loans you can find doesn’t give you enough enjoyment or isn’t sustainable, you may end up selling (possibly at a loss) before you even pay off what you’ve borrowed.
If you’ve considered all your options and confirmed that you either must borrow the money, such as for medical expenses, or can benefit, such as through debt reduction or increasing your education, then you could proceed with getting a personal loan.
2. Know how the loan costs will factor into your budget.
With a personal loan, you need to understand exactly how long you’ll be making payments and what the total cost of the loan will be. In some cases, you could be paying back hundreds or thousands more than you borrowed due to high interest rates.
You should also calculate the percentage of your monthly expenses that a new payment will take; ideally, you won’t pay more than 5% of your income for a personal loan. More than that, and you risk struggling to make payments.
Many borrowers look just at the monthly payment and determine if they can afford that. While lower monthly payments seem good, the lower the payment, the longer the loan terms and the more you pay all together. Look at an amortization calculator to help you figure out what your payments will be based on the interest rate and term.
The best personal loans have no pre-payment penalties, so make sure you can pay more than the agreed payment each month. If you have the ability, pay down your loan by as much as you can each month so you can limit the total you pay over the life of your loan.
Note that sometimes a slightly higher annual interest rate for a shorter term can result in paying less interest overall than a smaller APR spread out over more months.
3. Understand all of your loan options.
Online banks and credit unions can often offer reduced interest rates and better terms than a traditional bank, and the best personal loans are much less expensive than financing via a credit card or an extremely short-term payday loan.
With a higher FICO score (credit rating) and an established credit history, you will qualify for loans with a lower interest rate, which can dramatically impact the total cost of your loan. Regardless of your credit, you should shop around – compare loan lenders here. These companies keep expenses down by limited physical locations and offer more efficient interactions any time of day via the use of a mobile app.