Unpredicted money shortfalls and unforeseen situations may happen almost every day. It’s not uncommon to seek alternative ways of getting additional funding for your immediate cash needs. There are multiple ways of getting financed in times of an emergency. You may try any borrow app, take out a personal loan, or tap your friends and relatives.
A personal loan is one of the most common lending solutions these days. It allows consumers to receive the necessary funding without too much effort. You may utilize this cash for financing your dream wedding or covering a planned home renovation project. Here is professional advice on how to be sure you will pay back a personal loan before you decide to take it.
What to Ask Yourself Before You Request a Loan?
If you are looking for a cheaper alternative to credit cards and face the “I need loan now” problem, getting exactly a personal loan may sound reasonable. More and more people are choosing this borrowing solution to fund their daily needs or big-picture purchases. However, you should have a fixed repayment plan to avoid issues with your debt.
Here are the most common questions to ask yourself to ensure you can repay the loan:
#1 How Much Do I Need?
This is the most important question to ask yourself before you even think about the application. Many people are tempted to request a bigger sum than they need to cover unforeseen or planned costs.
What is the smallest amount you require to fund your expenses? Obtain from $500 to $5,000 depending on your current aims and what you need to finance. If you have some savings you may want to utilize them as well to minimize your debt load.
#2 How Long Will I Pay the Debt Off?
Another significant question is about the repayment term. Depending on the length of the repayment term you may have to pay a higher or lower interest rate. The shorter the term is the lower your rates will be.
So, if you want to minimize additional fees and interest rates you should choose the shorter repayment term. The majority of creditors offer the term between several months and several years.
#3 What Will My Interest Be?
The typical interest rates for personal loans vary between 3.49% and 35.99%. These numbers depend on several factors including the borrower’s credit rating, the repayment term, and the amount of cash they request.
Borrowers with good and excellent credit may qualify for better rates and more flexible terms. Also, a shorter repayment term will help you achieve lower rates.
#4 Can I Afford Monthly Payments?
Do you have steady employment? Are you ready to make regular on-time payments according to the loan agreement? Depending on your cash flow and the level of your monthly income you may choose the most affordable repayment plan.
The level of your income may define your ability to repay the debt on time. If you opt for autopay, you may even lower the APR by up to 0.50%.
#5 Do You Have to Pay Fees?
Many creditors don’t charge additional fees for their services. However, some crediting institutions will charge you an origination fee, a sign-up fee, a prepayment fee, etc.
For instance, the origination fee may cost between 1% and 5%. Thus, if you take out $10,000 with a 5% origination fee, the creditor will get $500 while you will only obtain $9,500.
#6 Is My Credit Rating Good Enough?
Before you think about applying for a lending solution, you should consider your current credit rating. Is it good enough to qualify for decent terms and conditions of a loan? You can read more information about credit scores on the USA Government official page.
If you want to get approved and obtain the cheapest offer you should improve your credit score. Some banks and conventional creditors pay great attention to this criterion.
Can You Repay the Loan Faster?
If you answered all the mentioned questions and are sure you will be able to repay the personal loan on time, you may also think about the early repayment option. Can you pay the debt off earlier?
It may sound a reasonable idea if you have a steady income source and can make extra payments to repay the loan faster. However, you should keep in mind that some service providers charge prepayment fees.
Here is an example of the total loan cost (all applicable fees are included): Amount – $1,000; term – 3 months; APR – 32%. Your monthly repayment is $351,27. The total amount payable is $1053,81. The total interest is $53,81.
Ask your provider if you will obliged to pay a prepayment charge. If not, it will be convenient to repay the debt faster and become financially independent again. Your credit history and credit rating won’t affect by early repayment. It won’t help to boost it either, but this is still a great chance to pay the loan off as soon as you can.
If your income flow isn’t enough but you want to get rid of debt faster, you may also look for a side gig.
Think about another part-time position for the evening hours or during the weekend to boost your monthly income and allow you to repay your existing debt. Having two or three jobs may also improve your chance of getting approved as your income will increase so you will be more attractive for the lenders.
All in all, if you consider taking out a personal loan to fund your needs, you should evaluate all the necessary information. Make sure you can afford to make on-time payments and your credit history is good enough to qualify for better loan conditions. Repay the debt on time so that your credit rating can improve.