Personal Loan Dos and Don'ts
There are many reasons you may want to apply for a personal loan.
You may want a new car, need it for school, a medical emergency, or you might want to take a vacation. Let's face it, sometimes, we just need a little extra pocket money and a personal loan is a great way to get cash you need fast.
But, how do you go to get good rates? What should you avoid? And what are reasonable terms for a personal loan? For those of you new to personal loans, read below.
When applying for your personal loan, be wary of the potential pitfalls. A personal loan is unsecured debt, meaning: it is debt for which the borrower does not offer collateral; the lender considers the borrower's credit rating to determine interest rates and eligibility.
Your chosen lender should have their average APR advertised - this number is an average. Half of their customers may receive the advertised rates while the other half receives higher rates. To make sure you get the rates you desire and payments you can afford, insist on getting a quote before committing to take out a loan. While reviewing your quote, make note of any arrangement fees. These extras will inevitably make your personal loan more expensive.
If your lender offers you a variable interest rate, be aware that variable means the rates will fluctuate - sometimes they will be high, other times they will be low. This will ultimately affect your monthly payments. During times of higher interest, your monthly payments will be higher.
Many lenders will offer you payment protection insurance (PPI). The insurance covers your loan repayment in the event you fall ill or are suddenly unable to work. Opting to purchase the insurance will reflect kindly on your interest rates; however, borrowers should carefully read over the terms and conditions, lest they fall victim to an unpaid insurance claim.
How to get the best deal
The only surefire way to get favorable interest rates on your personal loan is by making sure you have a stellar credit rating and shopping around. When comparing various lenders, be sure to look at the APR, as this is the annual percentage rate of interest you will be paying. The lower the number, the lower your monthly payments. The power to compare rates from different lenders gives you leverage as a borrower; you won't be in a position to accept whatever they hand you.
Alternatively, you may consider the route of peer to peer lending. Peer to peer lending is a nuanced form of personal loan in which borrowers and lenders exchange loans and payments in lieu of a third-party banking or financial institution. If your credit rating is high and the amount you wish to borrow is low, you may wish to exercise this option. Peer to peer personal loans tend to offer lower interest rates and the amicability of dealing with another person as opposed to a large bank.
Now that you know, you can choose the best personal loan for you today.