5 Personal Loan Tips

Personal loans can be used for many purposes, whether you want to finance a long-planned home renovation project, consolidate debt, or access some extra cash. Unlike mortgages and car loans, personal loans are unsecured, meaning they are not secured against any particular assets you own. You don’t need to provide collateral such as a car or  real estate property while trying to obtain a personal loan from a trusted bank or non-bank lender.

However, there are some essential things that you should keep in mind while looking for a personal loan. Here are five handy tips to consider before applying for a personal loan.

1.    Assess your needs for a loan

You should only take a personal loan after a comprehensive assessment of your needs. This is a financial responsibility that may prolong over a period of time, so it’s vital to assess the motivation behind the loan and ensure that it’s completely necessary. It might not be the wisest decision if the loan is for a fanciful personal desire to buy a luxury item.

2.    Maintain a healthy credit score

Although there are  loans for bad credit, having a healthy credit score is essential for some reasons. Your credit score is what potential lenders use to determine your ability to repay a loan. The more reliable you look, the lower interest rates and down payments you are likely to pay.

A good  credit score can also help you while making a large purchase, such as a new car or home, and give you access to a premium credit card with significant benefits. Simple acts like paying your credit card bills on time or getting ahead with a monthly installment plan will help you build a good credit score.

3.    Compare various loan offers

There are many personal loan lenders in the market, and each has its own eligibility criteria, time frame for disbursement, interest rates, and other terms and conditions. While some lenders offer loans at a lower interest rate, their eligibility criteria might be strict. Others may have more relaxed eligibility requirements but might not disburse the money you need. Compare different offers before applying and choose what works best for your financial situation.

4.    Look for the lowest interest rates

Since no collateral is taken as security, personal loans generally have high-interest rates. Even a small change in the interest rate can make a significant difference to your overall loan costs. This makes it essential to look for a lender that can offer a good deal on interest rate based on your credit score and requirements.

5.    Check whether you have the right documentation

While availing of a personal loan doesn’t involve lots of documentation, it’s essential to submit documents approved by the lender under every category to avoid loan rejection. Various financial institutions might have different personal loan requirements, so contact your preferred lender in advance to get a checklist of the documents you need to submit. Generally, you will need to submit a fully accomplished personal loan form, a copy of your valid ID, and proof of income.

Endnote

Personal loans are extremely popular since they are easy to obtain and can be helpful if used for the right purposes. However, it’s crucial to ensure that your lender is a reputable player and that your repayments are prompt and consistent. Most importantly, remember to use the loan for its intended purpose.