With the current economic climate and the continuing credit crunch, it has become commonplace for people to take out personal loans to cover various items of expenses, from paying off debt to vacation costs.
Personal loans are available through a variety of financial institutions and credit providers. Personal loan amounts depend on the loan issuer, interest rates, and in some cases, your individual credit rating. The better your credit score, the more money you can borrow and the better your interest rate will be. Interest rate (the rate at which interest is paid on an amount to the creditor from the debtor) is agreed upon during the final application process.
It is important to understand the nature of a personal loan. Loan providers ask potential borrowers about their income and length of time at their current job in order for a personal loan to be granted. This means that people who work from home, running their own businesses, may be considered as a higher risk and therefore will pay a higher interest rate.
When thinking about applying for a personal loan, consider whether it will be easier (and more affordable) to wait and save up for the item or expense. If, for example, you are planning on taking a holiday abroad, consider setting money aside each month until you have the amount you need for your vacation. It may seem like a difficult thing to do, but it will likely be cheaper than taking a personal loan and paying the monthly installments. And, once you have saved up the money, you won’t have to stress about the money you need to start paying back once you come back from holiday. It just means you need to be more patient and realistic about what you can afford.
It may be worth inquiring about a personal loan just to see what rate you would be given for the amount you require. Find out what the monthly installments would be and then instead of taking out the loan, rather save that amount of money each month. You will end up saving much more than what you would have had to spend in installments had you taken out a personal loan.
If you take a personal loan to pay back other debt (such as closing accounts or credit cards), you will effectively be paying off even more in the long run than if you just paid the debt off monthly according to the original contracts you agreed to. Taking out a personal loan to pay off debt may seem like an easy option at first, but it should be done responsibly to avoid going further into debt.
All of these factors indicate that applying for a personal loan should be a last resort, rather than a first option. Take the time to carefully consider your finances.