Top 5 Tips For Taking Out A Personal Loan
Right now the personal loan market is hotting up. Companies all over the country are vying for your business, offering competitive rates. Interest rates on personal loans continue to fall. And lenders, who were worried about lending after the crisis in 2008, are now opening up the market again.
It's all rather exciting. But there are risks that come with taking out a personal loan, as there are with any loan. That's why this post investigates some of the top tips for taking out a personal loan. So let's get started.
Know The Risks Of Secured Loans
Loans can be broadly be put into two categories: unsecured and secured loans. Unsecured loans are those that aren't linked to any assets that you own, like your house and your car. If you can't pay back an unsecured loan, lenders can't take any of your assets away. Secured loans are different. Here, you still promise to pay the lender back, but if you can't, they can take away the asset that is attached to the loan.
Usually, you'll find that the interest rate on secured loans is a lot lower than it is for unsecured loans. But this is because the lender faces a far lower risk when the loan is secured. As a borrower, you face a much higher risk with a secured loan, if you can't pay it back since your assets might be taken away. If you don't want to take the risk, sites like PersonalMoneyStore.com offer unsecured loans. These loans are great if you need some extra cash to cover a shortfall and don't put your house or your car at risk.
Stick To One Or Two Providers
Loan companies rely on data about you. Why? Because they need all the information, they can get about your creditworthiness. This means that companies often share data among themselves. If you've applied to one personal loan provider online, you may unwittingly be leaving a digital trail that other providers can see. Going from site to site, applying for personal loans, does not give off the best impression. In fact, to the lender, it makes you look like you're desperate for money. If you are experiencing difficulties, lenders will see you as higher risk. And if they see you as higher risk, you'll pay a higher rate of interest or may not be approved.
Even if you are desperate, you're more likely to get cash if you apply to just a couple of lenders. So stick with one or two to begin with, and then move on to other lenders if those applications are not successful.
Bigger Loans Often Save You Money
Sometimes as the size of the loan increases, the rate of interest on it drops. There are some situations where you can actually end up paying less interest overall if you choose a bigger loan. Finding these interest rate thresholds is important. So next time you choose a loan, see which one will cost you the least over the life of the loan and go for that one.
Of course, borrowing more than you need can be a problem if you're prone to temptation. If you know, you'll spend the extra cash and not use it to pay back the principal, stick with just the money you need.
Check Your Credit Rating
As mentioned, lenders care about your creditworthiness. It tells them how likely you are to pay back a loan. One of the main tools they have to judge your credit-worthiness is your credit rating. Your credit rating is informed by some factors, including any loans you've paid off in the past. But it's also informed by times in the past that you've missed payments.
If you've got a bad credit rating, companies will typically charge you higher than their stated APR. So, even if you don't have time this time around, it's worth building up your credit score for future loans. You can increase your credit score by using a credit card that you pay off each month, and making sure that you pay off all loans on time and in full.
Shop Around For PPI
Most people have only heard about payment protection insurance through compensation claim adverts. While it is true that PPI was mis-sold to many people, the product itself is actually quite useful. If you're taking out a secured loan, PPI will protect you from having your assets seized if you fall ill and fail to make the repayments. However, many policies contain exclusions, so be on your guard.
More to Read: