Steps in Choosing a Personal Loan
Personal loans are loans made from credit providers to enable you to obtain cash when you need it. After borrowing the money you will need to repay the loan plus interest over an agreed period of time in equal payments at weekly, fortnightly or monthly intervals.
Each repayment you make will consist of an interest and a capital portion. In other words, each time you pay a certain portion of the payment will go towards paying off your loan. Any additional amount that you pay, over and above the minimum payment stipulated in your loan agreement, will reduce the term of the loan and will result in reduced interest over the life of the loan.
Determine what type of loan you need
If you have a weak credit history then an unsecured personal loan may be the best option for you. If you have some form of security that you could use as collateral then you may consider a secured personal loan. If however you are in need of cash in a short amount of time and have a bad credit rating then despite the higher interest rates the unsecured loan may be your best choice. The first thing you need to do before you can start to make any further decisions with regard to your personal loan is to decide what type of loan you need.
Decide how much money you need to borrow
Most of the decisions you will make with regards to your personal loan will be influenced by the amount of money you need to borrow. If you only need a small sum of money you may not need to take out a formal loan with a bank and may find that a payday loan will be sufficient to meet your immediate needs. These loans offer quick money and can be spent as you wish.
Decide what amount you can afford to repay
Calculate what you will be able to afford in monthly, fortnightly or weekly payments. This will also have a large influence on the type of loan you should obtain. If the repayments are above what you can afford you can consider a longer repayment term, which will reduce your monthly obligation but will increase your total repayments due to the increased interest payable over the life of the loan. Don’t over-extend yourself and try to save on interest – rather opt for the longer repayment term and keep your repayments within your budget.
Determine the term of your loan
The time frame in which you wish to repay your loan will affect the type of loan that will best suit you. Depending on your financial position a short-term loan may be more appropriate. If you are however currently under financial strain then it is advisable to select a longer-term loan with smaller repayments so that you feel comfortable that you will be able to meet your obligations.
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