Taking out a personal loan can really help you when you are in a pinch financially. Before you take out a personal loan, there are a few key considerations you will want to think about.
Personal loans are typically short-term loans that provide you with funds quickly in a financial emergency.
If you run into an unforeseen medical problem or an unexpected home repair, you might need access to a personal loan to help you through a hard time.
From your reason for taking out a loan, to the loan terms and your current financial situation, this guide has seven important factors for you to consider when you are looking to take out a personal loan.
1. Reasons to Take Out a Personal Loan
When you need money quickly, a personal loan can really help in a pinch. There are several reasons why someone might take out a personal loan.
If you need access to finances in a hurry, a personal loan like one from Gazelle Loans, can help. Using a personal loan for a short-term financial problem or for a good financial investment can be a good solution.
Some common reasons for taking out a personal loan include paying for school, consolidating debt, a medical emergency, an unexpected auto or home repair, or to pay off a bill such as a credit card bill.
If your only car breaks down, for example, and you don’t have an emergency fund, for example, this can be a time when someone might use a personal loan.
2. Your Current Financial Situation
When you’re considering taking out a personal loan, you’ll want to consider your current financial situation. Mostly, you need to make sure you’ll be able to repay the loan.
If you are unable to pay back the loan, you can find yourself in a dangerous debt cycle.
When you apply for a personal loan, your lender will verify your income to make sure you are a good candidate for a loan. If you don’t have a steady source of income, for example, you may have trouble qualifying for a loan.
You should also take into account your other financial obligations. If you don’t have enough money to cover your other bills in addition to paying back the personal loan, you might want to go another route.
3. Your Credit Score
Your credit score will also be a factor in your loan qualification. Depending on your lender, you may see a soft or hard credit pull.
The lower your credit, the harder it may be to qualify for a personal loan. If you don’t have the best credit you might also not qualify for as much or have additional fees.
If your credit is in good standing, your chances of getting approved are much higher. If you’re unsure of your credit score, you can always download a free copy from the Federal Trade Commission once a year to stay on top of it.
You are given one free credit report a year to pull from the U.S. government. Checking your credit at least once a year can help you know your score and manage your debt.
4. When Not to Use a Personal Loan
While there are a lot of financial emergencies that might feel like an emergency, oftentimes, with a little bit of patience, we can hold off on some bigger purchases if need be.
You should never take out a debt that you don’t know if you can repay. Going into debt for a frivolous reason isn’t good either.
You should never use a personal loan for something that isn’t incredibly important or financially sound. Things like a vacation, personal shopping, holiday gifts, or a wedding ring, are a few examples of big purchases that aren’t financially necessary.
5. Personal Loans Can Help Payoff Debt
In some cases, you might need a personal loan to pay off other debt. If you have a past due to credit card balance, for example on a closed card, you can use a personal loan to pay it off.
You can also consolidate credit card debt or pay off a closed student loan. It might be better to close some of these accounts and pay off the debt so you can stop paying penalties, fees, and other expensive charges.
6. Personal Loans Terms
The personal loan terms for your loan will vary depending on your unique situation, the amount of money you are borrowing, the state you live in, and the lender.
When you apply for a personal loan, your lender will be able to explain the fees and costs associated with the loan.
Your lender will also tell you how the repayment works and what you qualify for. In some cases, your payments might be due in under six months, while other personal loans have longer payment terms.
Your repayment plan will also vary depending on your situation. Sometimes, the payments are taken directly from your checking account on the day you specify.
In terms of receiving your money, oftentimes it will be placed directly into your savings or checking account. You should be able to receive your funds in just a couple of business days.
Is Taking Out a Personal Loan Right for Me?
If you’re contemplating taking out a personal loan, you have a lot of factors to consider.
From why you are taking out a personal loan in the first place to how much you’d like to borrow and how you will pay it back, there are several factors you should think about before you apply.
If you need access to funds for a medical emergency, an unforeseen home or auto repair, a personal loan may be just what you need to get you through this hard time.
While an emergency savings fund is probably always your best bet, life happens and this sometimes just isn’t possible.
If you’d like some more finance tips, visit the about personal finance page, for great resources.
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