Updated: Jan 23
People have a terrible perception of loans. But such a belief is not entirely correct. After all, taking out a loan to improve oneself is justifiable.
The interest rates of personal loans are cheaper than that of credit cards. However, although they have competitive rates, you must have a repayment plan before taking out one. This will ensure that you pay your obligations on time. Thus, you would not be anxious when the due date comes.
If you’re thinking about taking out a personal loan, you must consider a few factors. Here they are:
How Much Do I Need?
Your first step should be determining how much you need. Some lenders offer small personal loans that amount to $500. Other institutions have a minimum threshold of $1000 to $2000.
What if you only need less than $500? In this case, you might consider borrowing money from a friend or family member. Doing this may save you from paying interest.
Should I Ask My Creditor to Credit the Loan Proceeds Directly to My Bank Account?
Most financial institutions would credit the loan proceeds directly to the debtor's bank account. But if the primary purpose for taking out the debt is debt consolidation, the lender will likely skip your bank account. They would probably credit the money directly to your other creditors.
If you use the proceeds other than paying your existing debt, you can ask your creditor to wire the funds directly to your account. You can also do this if you want a more hands-on approach to debt consolidation.
How Long Will I Have to Pay It Back?
The terms of personal loans may vary, but lenders will stipulate that you begin paying for your obligation within 30 days. The repayment scheme may differ. It may be as short as six months, while others are seven years. Your repayment schedule will impact the interest rate and the monthly amortization.
How Much Interest Will I Pay?
We mentioned earlier that your repayment schedule would affect the interest rate, but other factors will impact it. One component is your credit score. The lender will often offer lower interest rates if you have an excellent credit score. If this is the case, you should choose the shortest repayment term.
Can I Afford the Monthly Payment?
One of the biggest mistakes people commit when getting personal loans is failing to ask whether they can afford to pay it. To prevent any default, you should carefully choose the repayment plan. If possible, you should enroll on autopay because most lenders offer incentives if you do. Doing this might lower your APR by 0.25 percent or .50 percent.
If you want to low monthly amortization, you may choose a more extended period to repay your loan. But if you are going to pay it as quickly as possible, you might opt for the ones with higher monthly payments.
Financial obligations can be a major cause of anxiety, but it does not have to be the case. You just need to carefully plan your repayment scheme before taking out a loan.
If you find yourself in a pinch, you do not have to look elsewhere. First Finance Company Birmingham offers personal loans. If you need some financial help, do not hesitate to look us up.