According to Finder.com, more than a third of Americans took out a personal loan over the past year, with the majority using the money for vehicle-related expenses followed by paying bills or for an emergency. No matter what the reason you’re thinking about taking loan for, from renovating the home you bought among the Charlotte houses for sale to consolidating debt, there are a few things you probably didn’t know that you should before filling out those applications.
Be Sure You’re Taking Out the Loan for a Good Reason
Assuming you’re not shopping for a secured loan, such as buying a home or a car, an unsecured loan or personal loan should only be taken out for things that you truly can’t wait. If you can wait and save the money you need by breaking it into smaller, monthly chunks and budgeting for the expense, it’s a much smarter move financially.
However, if you plan to take out a personal loan to consolidate your credit card debt, for example, it can make good financial sense if the interest rates on your credit cards are higher than the rate on a personal loan. These loans are reported under a different category on your credit report and tend to have a more favorable impact than maxing out your credit cards too which means it can protect your credit and help you save money too.
Higher Interest Rates
As these loans aren’t attached to an asset, it means you don’t risk having something repossessed, but it also often means higher interest rates. The lender will have to go by your creditworthiness without collateral, so the interest rate is likely to be steep if your credit is poor or average. When you hear about interest rates, most of the time media is referring to 30-year fixed rates for standard mortgage loans which are just over 4 percent. The interest rate for a personal loan is usually at least twice that and can be as high as 36 percent if your credit is subpar.
There are Lots of Lender Options
Banks aren’t the only place where you can get a personal loan. There are many marketplace lenders like Prosper and SoFi that offer quick online approval which can be good for those with stellar credit. Credit unions typically offer lower fees and rates than banks for the same loan products. There are many different kinds of lenders willing to extend credit to borrowers within nearly all credit score ranges – the higher the score, the better rate you’ll get.
Fully Understand the Exact Terms of the Loan Before Signing
Before you sign on the dotted line, be sure that you’re fully aware of the exact terms of the loan, including the APR and all fees. Know what your annual percentage rate (APR) will be as well as the total cost you’ll pay for the loan and any fees that you might or will incur throughout its life. There are lots of fees that many aren’t aware of such as a loan processing or origination fee, fees for late payments and prepayment penalties.