How to get a personal loan: Factors you should keep in mind

People who need cash now during emergencies turn to personal or online loans for fast approval by a direct lender. Unlike mainstream creditors, personal loans are often easy and quick to secure. Kenneth wants to know how to get a personal loan properly.

“My monthly mortgage is due in 11 days and I need cash now to avoid defaulting. I have a good credit standing, and I’m a little edgy taking out a personal loan though. Will it put me at risk of getting bad credit??” – Kenneth, Charlotte, NC

No, Kenneth, at least if you pay it on time. Getting a personal loan is like securing any other loan no matter how big or small. The only time you’ll earn a bad credit if you’re unable to meet payments. This is easier said than done, of course. The risks are not on the loan itself, but on factors that might make it harder for you to pay on time.

When thinking of how to get a personal loan similar with what they have in the UK and Canada and manage it wisely to avoid risking a bad credit, consider asking yourself these four questions:

1. Do I really need the loan?

Ironically, the first rule to consider on how to get a personal loan is to ask yourself if you need the loan. The moment you take out a loan you’re already increasing the risk of getting a bad credit. The loan sets in motion a time bomb that hangs on your head until you pay it up. Otherwise, this bomb can explode in your face and put you in a debt spiral.

A lot of factors can happen between now and the loan’s due date. A job loss, medical emergency, or accidents can put a strain on your finances. Instead of a loan maybe you can cut costs and save money or increase your income. Not only will this tactic protect you from bad credit, it will help you prepare for those emergencies.

2. Am I just getting the amount that I need?

A direct lender can charge hefty fees on a personal loan depending on your credit standing. The penalties are even higher. When you really need a loan, limit the costs by getting only the amount that you need. Be wary of being offered an amount more than what you’ve applied for. A direct lender will do this to get more business from your loan.

3. Do I understand the terms and penalties?

One of the most practical ways to do on how to get a personal loan properly is to compare loan rates and terms. Use one of those web-based systems that allow you to compare loan packages. Check for hidden fees. Likewise, understand the costs of late payments. Even if you’re confident that you can pay the loan on time, anticipate the worst scenario and calculate the total costs.  This is helpful to put you on your toes to set aside an exit strategy for the loan.

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4. Is it an emergency?

Here’s the harsh truth—do not take out a loan to pay for the household budget. Your cost of living should be covered by your income. If it can’t, a loan won’t solve your financial problem; it will only worsen it. The solution is to find a way to increase your income or lower down the costs. Unfortunately, many people borrow to pay for utilities, food and everyday costs. The Pew Research estimates that 69% of borrowers use a personal loan for recurring expenses.  Personal loans should be used for emergencies alone, such as accidents, disasters or medical emergencies. The interest and fees are high so the situation must justify these costs.

CONCLUSION

Taking out a loan whether it’s big or small always entails a risk of getting a bad credit. In case you really need one, ask yourself the questions above repeatedly until you’re convinced you can answer YES to all of them.

Category: Questions & Answers

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