Whether you need money to plan a wedding or to cover unexpected expenses, a personal loan is often your best option. However, there are several important details to consider before applying for a loan.
Secured and Unsecured Loans
Your credit history may impact the type of loan that you can apply for. Individuals with good credit standing may have no problem obtaining an unsecured loan with a lower interest rate. An unsecured loan means that no collateral is required by the loan applicant.
For those with poor credit history or a large amount of outstanding debt, the lender may require collateral to mitigate their risk. This is referred to as a secured loan and is the most common choice for those with bad credit.
The lender may also want to know your reason for needing a personal loan, such as funds for a holiday or wedding. You may also choose to apply for a debt consolidation loan to simplify the repayments for your existing debt.
Interest Rates and Hidden Fees
The next consideration is the interest rate of the loan. The higher the interest rate, the more interest you will pay over the life of the loan. Interest rates often vary between 9.95% and 19.95% depending on your credit history, type of loan, and the length of the loan.
You should also look for any hidden fees before accepting the terms of a loan. Lenders may include fees for underwriting, processing, credit reports, and other details. While these fees may not impact the interest rate of personal loans, they can impact the amount of your weekly or monthly repayments.
Length of the Personal Loan
You also need to think about the length of the loan when applying for a personal loan. You can typically choose a length between 1 month and 60 months. Choosing a lengthier repayment plan will result in lower weekly or monthly repayments. However, this may also result in slightly higher interest rates.
To help you choose the length of the loan, you should consider using a loan estimate calculator. You can enter the amount that you would like to borrow, the estimated interest rate, and the length of the loan. The calculator will provide the estimated repayments.
Avoid agreeing to terms that you cannot afford to pay. While a shorter loan length may result in less interest over the life of the loan, the higher repayments may be more difficult to pay each week or month. Missing a payment can result in expensive penalties and late fees.
Frequency of Repayments
Some lenders provide borrowers with the option of making weekly or monthly repayments. Weekly repayments may help lower the amount of interest that you pay by the time the loan is paid off. Weekly repayments are also convenient if you get paid weekly.
Online lenders often provide loan calculators to help you consider these details before applying for a loan. Keep these details in mind as you compare lenders and loan options.