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February 3, 2018

What You Need to Know Before Taking Out A Personal Loan In 2018

At the beginning of every year, we make different plans and resolutions. These resolutions may be as simple as spiritual growth or as demanding as home improvement. Either way, be they simple or complicated, achieving your goals for the year demands both sweat and financial equity.

While you may be willing to do the work, financial constraints may impede your progress. In such circumstances, short-term loans can come to your rescue. Such loans can help you cover expenses such as home renovations or help you consolidate your debt bringing you closer to realizing your dreams.

What is a personal loan?

A personal loan is an unsecured loan that you are given based on your income and credit score and are supposed to repay in equal monthly installments. Unlike car loans and mortgages, personal loans are not usually backed by collateral. This makes their interest rates higher and the payback period shorter.

Personal loans are therefore meant to be short-term solutions. You should borrow a small amount that you can pay back with ease. Borrowing a lot of money may leave you with payments that are too steep to keep up with within the short payback period.

Today, banks are not the only place to get a personal loan. Many online lenders have emerged in recent years offering personal loans with faster approval and more competitive interest rates than banks. As such, if you need a personal loan, you have many options from which you can choose.

To qualify for a personal loan, all you need is good creditworthiness. The amount you qualify for and the interest rates charged on your loan is dependent on your credit score. If you have excellent credit, you can be eligible for substantial loans with low interest rates.

When to take out a personal loan and when to avoid it?

You can use a personal loan to finance some needs including but not limited to the following:

  • Consolidating smaller debt
  • Catering for urgent financial needs such as emergency medical bills or fixing a leaking roof
  • Funding home improvement projects if you do not want to rack up a credit card bill with high-interest rates or turn your home equity into cash

However, given the high-interest rates and high repayments attached to these loans, applying for one is not always a wise move. To avoid being dragged into ruin by personal debts, you should take out a personal loan only when there is an urgent need for money.

Do not just sign a loan agreement simply because you qualify for a personal loan. Your decision ought to be based on your financial situation and goals. If you can delay making a payment or a purchase until you have the cash, avoid burdening yourself with more debt. If there are better options, avoid the loan. For example, you should first consider federal and private student loans when paying for college or refinancing student debt before thinking about taking out a personal loan.

Here are some instances in which you should avoid taking out a personal loan:

  • To cover major expected expenses such as weddings or vacations
  • To make investments or start a business
  • Financing a car
  • Paying for college

Be wise when taking a personal loan!

It is tempting to keep up with a lifestyle that we cannot really afford. This is why you will find many people today scrapping by day-to-day using short-term loans to fund their daily living costs. Bad debt has since become one of the greatest burdens currently weighing down millions of people in the country. To avoid it, you must make sure that you only borrow a reasonable amount whose repayments can easily fit into your monthly budget. The short-term loan should also have the effect of furthering a financial goal as opposed to setting you back.

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