Is It Necessary?
The first thing you should avoid when taking out a personal loan is borrowing money instead of saving it. In other words, if you have the ability to save your way out of debt or a short-term problem, a personal loan is not going to be the way to go.
Yes, it is an instant gratification situation, meaning that you can get a bit of relief right now, only to pay more in the end.
Make sure that you are taking a loan when you need to, and not when you want to. These are two completely different things, and one of the biggest traps that consumers fall into.
What About Other Borrowing Options?
It depends on what the situation is, but quite often you will find that there are otherborrowing options that make more sense. For example, some people look to personalloans in order to finance education. Federal student loans are almost always cheaperthan a personal loan, and quite often, offer a multitude of benefits beyond a smallerinterest rate, such as in the way that you get to repay the debt.
There’s also the possibility of transferring a balance to a new credit card with an introductory 0% APR. This is especially true if it’s a debt that you can pay off before the introductory APR ends. Either way, you will be cutting out a lot of the interest that youare paying on an existing debt and should look to take advantage of the 0% APR as quickly and aggressively as you can. In fact, some people will simply go from one 0%APR credit card to another, until the debt is completely wiped out. While this can be done, keep in mind that adding more lines of credit to your credit report isn’t necessarily the best thing to do.
Settling for the First Offer
You should also shop around and compare the lenders with the best personal loan rates. Unfortunately, many consumers will look to this marketplace and take the first offer. They will typically go to their own bank initially, to try to get credit. They assume that since they are a customer of the bank, the bank will know them personally, and give them an offer with much less scrutiny. While this could be true, the reality is that your bank may not offer the best terms. By looking around, you could find a lower interest rate, or perhaps even less in the way of origination fees or the like.
There are a multitude of places where you can get a personal loan, not just your local bank. There are various alternatives online as well, and of course some employers might offer short-term loans with a low interest rate. A personal loan is just like other products that you buy; you need to find the best value overall.
Pay Attention to Costs and Fees
You should always pay attention to the costs involved in debt and a loan, as well as the fees. Quite often, there will be a prepayment penalty that the lender will charge if you try to pay off the debt ahead of schedule. You need to be aware of this, since often, the prepayment penalty isn’t even thought of, and often catches people by surprise. Despite this, paying off a loan quicker is almost always the best way to go.
There are also origination fees that can be an issue as well. By overlooking these fees,you are at risk of being hurt financially. That being the case, I think that the credit market should be approached carefully, and you should read everything packaged within the loan, making sure that you understand the ins and outs.
Never Lie on a Personal Loan Application
You should never lie on a personal loan application, and always provide accurate and true information. Surprisingly, this is very common, but it also can be prosecuted as fraud and could even land you in jail. Granted, most of the time you will simply be turned away but it’s not worth taking the risk. Getting a personal loan won’t be worth your freedom.
Stick to the truth, and shop around is by far the best advice anybody can give you.