What to Consider Before Getting a Personal Loan

For many who find themselves in a financial bind, taking out a personal loan can be a lifesaver. The relatively quick infusion of cash can help people in all sorts of situations, from paying for a wedding to covering medical expenses. Though it can be helpful in a number of different circumstances, there are a few factors you’ll need to keep in mind when deciding whether it is the right choice for you. Read below to discover the most important considerations to keep in mind before applying for a personal loan.

Need a Loan?

Your Reasoning

Why do you want to take out a personal loan? Are you running low on cash? Is it for an emergency? Personal loans are best when used for smart financial investments like consolidating debt, paying for college and other educational costs, covering medical bills, paying for a big event like a wedding or funeral, and paying down credit card debt. Extra consideration is wise before using a personal loan for luxuries like vacations and clothing. You’ll also need to think about how this loan will factor into your personal budget.

Credit Score

Personal loans don’t require collateral, so lenders use your credit score to determine whether you’ll be approved and what your interest rate will be. The higher your score is, the greater your chances of approval will be. You’ll also get lower interest rates when your score is better. Before submitting an application, check your credit score and, if you have the time, take steps to improve it.

Short-Term Solution

This sort of loan is perfect when you find yourself with unexpected bills but remember that it is only a short-term answer. If you have a medical emergency or home repair crisis, you need the money quickly so you can return to your everyday life. Generally, the length of a personal loan is five years or fewer. If you borrow a large amount of money, your monthly payments will be high and possibly unmanageable. Make sure to consider your budget and calculate your monthly payment before deciding how much to borrow.

Personal Loan Application

Higher Interest Rates Than Other Loans

Interest rates for personal loans are generally higher than rates on loans secured by collateral. This is because there is less of a risk to the lender. With a personal loan, there isn’t a physical asset to support the loan, making it a higher risk for the bank or credit union, which translates to higher interest rates. Your specific rate will depend on your credit score and the lender.

Available from Varying Sources

Personal loans in Lake City, MI, are available from a range of different sources. You can visit your bank, local credit union, or use an online lender. Credit unions are an excellent choice because they often offer lower origination fees and interest rates.

Contact us at Forest Area Federal Credit Union to get more information about applying for a personal loan today.