Did you know that there were 21.1 million outstanding personal loans in the United States in 2019? And the average debt per borrower was $8,402.
Are you thinking about getting a personal loan? Perhaps you are in a financial bind and need some extra cash to tide you over until your next paycheck? Or maybe you need some money to help out a family member?
Whatever your reason might be, read on to see 12 tips that will help you get the best personal loan for you at the lowest personalized rate possible.
Table of Contents
- 1 1. Ensure That You Absolutely Need the Loan
- 2 2. Maintain a High Credit Score Always
- 3 3. Don’t Apply for Multiple Loans
- 4 4. Research Your Loan Provider Thoroughly
- 5 5. Check What the Prepayment Terms Would Be
- 6 6. Always Search For the Lowest Interest Rates
- 7 7. Make Sure You Are Eligible for the Loan
- 8 8. Enquire If There Are Any Additional Charges
- 9 9. Make Timely Payments Always
- 10 10. Try to Shorten the Loan Tenure
- 11 11. Double-Check Your Credit Report Before and after
- 12 12. Wait For 6 Months before Re-Applying
- 13 Don’t Be Foolhardy When Getting a Personal Loan
1. Ensure That You Absolutely Need the Loan
Getting a personal loan means that you are going to be adding an additional expense into your already taxed budget. Do you really need this personal loan? Is it absolutely crucial or are you taking it out for an unnecessary want?
For example, you might already have a lot of credit card debt (at high interest rates) and you are taking out a personal loan to go on a family vacation. In that case, you would have to evaluate carefully if that vacation is something that can’t wait until you have the cash for it. Do you really want to get into further debt for a frivolous vacation?
2. Maintain a High Credit Score Always
The paramount rule for any American should be to try and maintain a high credit score, no matter what. There are many advantages to this, but the main one is that if you are putting in a loan application, they are going to check your credit score to decide what kind of an interest rate to give you.
If you are getting a personal loan, it’s an unsecured loan as it doesn’t have any asset being held against it as collateral (in case of nonpayment). So you would be charged a much higher interest rate. But this already high interest rate gets bumped up even more if you have a low credit score.
A high credit score is important not only for loan applications, but also when you wish to purchase a home in the future and need to get a mortgage, or when you are applying to different jobs that check your credit scores before accepting you. In the modern world, a person with a high credit score is king (or queen).
3. Don’t Apply for Multiple Loans
You might be thinking that applying to several jobs or several universities at once increases your chance of getting your application approved. The same could apply to personal loans, right? Wrong!
Every time you apply for a personal loan, your credit report is pulled multiple times and that adversely affects your credit score. It might indicate to the lender that you are desperate for funds and they might jack up your interest rate to take advantage of this fact. Don’t give them additional ammunition to increase your interest rates – apply for one loan at a time.
4. Research Your Loan Provider Thoroughly
Due to the surge in people applying for personal loans, there are many shady and unreputable loan providers popping up everywhere. They charge exorbitantly high interest rates or have shady and manipulative practices (hiding terms or not disclosing all fees) which can result in you paying back this personal loan for years to come.
Always do your due diligence. Research your lender to ensure that they have a good reputation online among previous customers. One reputable lender to watch out for is Plenti Personal Loan.
5. Check What the Prepayment Terms Would Be
Always ask your lender if it’s possible to pay back the loan faster than the contract indicates. What if you have a windfall or you come into a bit of extra tax refund money? You will want to use that money to pay back your personal loan faster, right?
But some loan contracts have a fee associated with prepayment. Make sure that either there are no extra charges for prepayment or the charges are inconsequential.
6. Always Search For the Lowest Interest Rates
A low-rate personal loan should always be your goal when searching through reputable lenders. As personal loans are unsecured, they have high interest rates on them. This means that even a small difference in interest rates can make a huge difference long-term in the amount of interest you would end up paying.
Do your research and don’t be lazy about getting a personalized rate. If you spend some time on this, you can find the perfect personalized loan for you.
7. Make Sure You Are Eligible for the Loan
Before making the loan application, always ensure that you are eligible for the loan. There are many eligibility criteria associated with personal loans and they can be quite a bit stricter than other kinds of loans because there is no collateral associated with them.
Read through the loan criteria carefully to ensure you are not wasting time by applying for this particular loan. Remember, you can only apply for one loan at a time if you don’t want to affect your credit score adversely, so it better be a personal loan that you are eligible for.
8. Enquire If There Are Any Additional Charges
Every lender is different in the additional charges they tack on to the personal loans they give out. What additional charges, if any, does your lender charge, like processing fees and such? Read through the terms and conditions carefully to ensure there aren’t any weird terms or charges that could cause you to be stuck with this loan for a time to come.
9. Make Timely Payments Always
As personal loans usually have a higher interest rate than other loans due to their unsecured nature, missing a payment on them can result in huge consequences down the road. Not only will paying on time ensure that you don’t have any penalties for missing payments, but it will also prevent your credit score from being affected adversely.
It will also ensure that you pay off your personal loan on time, without incurring additional interest.
10. Try to Shorten the Loan Tenure
If possible, use any prepayment terms and pay off your loan faster than the contract entails. You want to go into a personal loan with the thought process that you don’t want to be stuck with the loan any longer than you have to be. It should be a quick in and out kind of deal.
Some lenders will allow you to have extremely long payment periods (25 years or more) with low interest rates, but that’s just a trap. You don’t want to be paying off this personal loan into your 70s or 80s. Pay it off and get it over with asap!
11. Double-Check Your Credit Report Before and after
Put it into your calendar to check your credit report (some websites allow you to check for free) before applying for the loan and after. In general, you should be checking your credit report at least once a year to ensure no unscrupulous charges, credit cards, loans, or other items have been added to it.
Ensure that the loan application doesn’t affect your credit report adversely and keep an eye on it after you pay off the loan to ensure your credit score stays high. A credit score is everything in the modern personal finance world, so you will want to ensure it’s healthy.
12. Wait For 6 Months before Re-Applying
If for any reason your loan application gets rejected, do not reapply immediately. Not only will this indicate to your lenders that you are desperate for cash and could lower your credit score, but if your loan application was rejected due to a poor credit score, the 6 months will give you the necessary time to boost up your score before applying again.
Applying to many different lenders at once will not magically approve your personal loan request. In fact, if one lender has rejected you based on certain criteria, it’s likely other lenders will as well. Take this as insight into your current financial status and work on improving your reputation among lenders.
Don’t Be Foolhardy When Getting a Personal Loan
Getting a personal loan isn’t child’s play. You are literally gambling with your financial future (and your loved ones’ future as well). That’s why it’s so important for you to keep all the tips laid out above in mind, before sending out any loan applications.
If you do end up getting a personal loan using the tips above, then ensure that you pay it off on time, as fast as you can, and avoid taking too many high interest personal loans in the future.
Try to ensure that you spend within your limit and get a second job to pay off additional expenses, rather than getting a personal loan.
Did you find this article useful? We are glad to hear that. Keep browsing our website to learn more about personal finance.