Personal loans come in handy when someone needs instant cash for specific reasons. But before making the application, it is important for one to do some self-assessment to determine whether the loan is the right option for them or not.
Every year, millions of people use personal loans to cater to emergency bills, consolidate debt, finance wedding, invest in small startups, repair cars and even upskill themselves. This loan option is appealing to many, thanks to the lower interest rates and accessibility. Despite this, it is vital for one to do a thorough research upfront to ensure they are making the right choice.
Here are four questions to ask before applying for a personal loan:
What’s it for?
People often ignore this question, yet it can save them from unnecessary financial strain later on. It’s not uncommon for someone to say “cash could save the day,” or “I just need the money.” Unfortunately, this only leads to borrowing more money than they need and using the cash on things they didn’t plan on.
Ideally, one has to state from the beginning, why they are applying for the loan. It is unrealistic to take out a loan to invest in a small startup, only to end up using it on a new mobile phone or holiday. Setting clear boundaries right from the start is the best way for one to take only what they need, and use it for the intended purpose.
What are the chances of approval?
Not all personal loans are approved – it all boils down to how good, or bad the applicant’s credit rating is, their ability to repay the loan within the specified timeframe, collateral, outstanding debts and so on. It’s therefore critical for one to analyze their strengths and weaknesses to measure how financially dependable they are. Those who have good credit scores, are financially healthy and are in good standing with their lenders have higher chances of approval.
It’s true that finance is available for everyone, but this does not mean every person should apply. People with lower chances of approval should hold off, and try to improve their weaknesses first. A failed application is recorded in the credit report and can only harm someone more, especially if they are planning to apply in the future.
What’s the best finance option?
The market avails an incredible range of finance options – each presenting its own sets of pros and cons. Asking this question will help the applicant determine what will work best for them – whether it’s a secured or unsecured loan. The former option uses property, like a home or car as collateral, but grants better rates. The latter doesn’t need any collateral and are easier to get. But since they are riskier for the financial institution, they pose a higher interest rate.
What fees are involved?
In addition to interest rate, the applicant should also look for any hidden charges that some lenders add. This may include repayment penalties, late fees and so on. The best approach is for one to find out how much the lender charges, when they charge is and how much it will cost them right before the settle for the deal.