Are you thinking about getting a personal loan? If yes, then wait, take a deep breath and read this post till the end.
Personal loans may have become a necessity in the current circumstances as they help you arrange cash in times of need. However, they also have higher interest rates. Here are 5 things you must consider before getting a personal loan.
As unsecured loans (funds given without keeping an asset for collateral), you will have to bear a very high-interest rate on personal loans. Think about the long-term and decide if the credit is worth it. Check if you can pay the high rates of interest consistently in the future. Check penalty rates before diving into any loan.
You may have other options
Visit a bank for a personal loan only in the case of a pressing financial needs that cannot be met by your savings or loans from friends and relatives. Savings are always interest-free, and it would be better to take a small part of your own money instead of asking a bank for a loan and pay a high-interest rate for it. Friends and family may also loan you money at a lower rate of interest (or interest-free). First, explore all the options that come for cheap instead of diving straight into a loan.
Your credit score
It is difficult getting a personal loan if your credit score is low. Even if you manage to get one, it would be at a very high rate of interest. Loans like payday advances look small and harmless but could gobble up your finances in no time. Therefore, it is worthwhile to review your credit score before applying for a loan. Checking your credit score is free. Also, you must feel confident that you can pay off the loan with your current income. A default could severely impact your credit score for years.
Your current debts
If you already have credit card debt, car loan, mortgages, etc. that demand a considerable chunk of your salary, stay away from personal loans. If you can defer the need for which you are seeking the loan, do so. In the meanwhile, pay off one or more of your existing debt. For example, if you already have a payday loan, wait for another paycheck and pay the debt in full. Think about a personal loan next month.
They are unproductive
Most people take personal loans to meet a financial emergency, to travel, to organize a personal event and more. These activities are considered ‘unproductive’- they won’t help you earn money. A business loan is taken for productive activity, i.e. to help the business grow. When it does, it brings in money and helps you in paying back your loan. With personal loans, your salary gets to handle an extra burden.
Whether it is health or wealth, precaution is always better than cure. If you look at your finances carefully, you will know if taking a loan is a good option for you.