#Collaborative post
As the cost of living only continues to rise, many people struggle to pay for basic necessities and cover the costs of unexpected expenses. This turbulent economy has forced more individuals to reconsider their financial priorities. I, too, have often asked myself: should I be saving or spending more?
While both are but a part of life, maintaining a balance between the two is essential. However, in such a challenging economic climate, personal loans have seen a rise in popularity, helping to bridge the gap in such trying times.
Personal loans are loans that can be used for various purposes, from paying for large purchases to consolidating high-interest debt. These loans are often unsecured, so you won’t have to put up any collateral (such as a house or a car) to be approved.
Many lenders may be willing to let you borrow money. However, I’ve found that it’s important to do some research before applying to ensure you get the best deal.
In this article, I’ll be sharing some of my personal tips to help you choose the right personal loan for your financial needs.
Let’s begin!
1) Decide How Much You Need to Borrow
When it comes to applying for personal loans, one of the first things you need to do is decide how much to borrow.
While it may sound a bit obvious, many people often overextend themselves when it comes to borrowing money. If you take out a loan for too much money, you may have to pay interest on money you don’t actually need.
Alternatively, taking out too little may lead to you being unable to achieve your financial goals and potentially having to take out a second loan. That’s why you need to only borrow what you need.
When you take out a personal loan, evaluate the interest rates and monthly repayments to ensure you can afford the loan. Keep in mind that the amount you need to borrow, and the actual amount you’ll be able to get may differ depending on key factors, such as eligibility and creditworthiness.
2) Consider Your Loan Term
After you’ve decided the amount you want to borrow, it’s best to consider the term of your loan. Typically, personal loans are repaid over a period ranging from one to ten years.
Many often overlook how the loan term impacts monthly payments as well as the amount of interest you’ll pay overall. If you borrow money over a longer time, your loan repayments may be lower, but you would pay more interest overall. Meanwhile, borrowing the same amount over a shorter period will mean that you pay less interest in total, but your monthly repayments will be higher.
I’ve found it best to take a step back and weigh the pros and cons of both options to make the choice that’s best suited to your financial circumstances.
3) Review Your Credit Report
Lenders will often refer to your credit report when they assess your loan application.
Having a good credit history demonstrates your reliability as a borrower and your ability to repay what you owe, potentially increasing your chances of approval. You’re also more likely to receive more competitive rates with a favourable credit score.
If you’re planning to apply for a personal loan, I’d suggest getting a copy of your credit report and evaluating the information there. You need to ensure that it’s updated and free from any errors so that it accurately represents your credit history.
If you find that your credit score is less than ideal, there’s no need to worry. Your credit history is always changing, and there are plenty of things you can do to improve your credit score and give you the best chance of being accepted for a loan.
4) Compare the Costs
I’ve noticed that many individuals often stick to their own banks and lenders they’ve worked with before when it comes to loans. However, your chosen lender may not always offer you the best loan deals, and you may find other lenders/ banks that have special offers that work in your favour.
Shopping around and comparing the costs of loans is an effective way to ensure you find the right personal loan that matches all your requirements.
Many lenders often offer different rates for different loan amounts, meaning that sometimes borrowing more could lead to repaying less. A good way to compare the costs of loans is to use the annual percentage rate (APR). The APR accounts for any charges or fees you need to pay as well as the interest rate. Hence, the lower the APR, the more affordable the loan.
I’d also recommend only considering reputable lenders that are recognised and regulated by the Financial Conduct Authority (FCA) when making your decision. FCA-authorised lenders practise responsible lending and will act in your best interests.
5) Check for Early Repayment Penalties
Taking early repayment penalties into account is a key factor to consider when choosing your loan.
If you want to pay off your loan quickly by paying off more money each month than is required, or you wish to pay it off entirely in a lump sum before the end of the loan term, you may be unable to do so without a penalty.
Many lenders often charge one or two month’s interest for this privilege. However, there are many loan providers who don’t charge any early repayment fees. If you believe you can pay off your loan early, it’s more practical for you to choose one of these lenders.
To Wrap Up
Personal loans are great financial tools that can be used for many purposes, including home repairs, emergency car maintenance, and even pet care expenses. However, you need to choose the right loan that fits your exact needs.
Before applying for any personal loan, research all your lender options and compare costs. Don’t forget to review your credit report and credit score and look out for any early repayment penalties as well.
By keeping the above tips in mind, you can make a practical and smart decision that will help you satisfy your financial obligations.