Personal loans have become one of the most popular credit options for American consumers in recent years. They appeal to borrowers because they typically come with a lower rate than a credit card and a fixed amount and term, which means there’s a definitive end to your payments. Personal loans are also desirable because of their flexibility – they can be used for virtually any expense, from financial emergencies to debt consolidation and tax bills to home improvements. Here are some do's and don’ts for taking out a personal loan:
Do compare interest rates and fees.
Shop around for the lowest possible interest rate and pay attention to additional costs like origination fees and/or pre-payment penalties that could increase your overall loan repayment. The best personal loans come without built-in fees. All personal loans from Orange County’s Credit Union offer no origination and no pre-payment penalty fees.
Do consider a secured loan option.
Personal loans are typically lower interest than a credit card and require no collateral. However, if you’re looking for the lowest interest rate possible, you might consider a secured loan like a Home Equity or borrowing against the fund in a savings or certificate account. It potentially could save hundreds or even thousands. However, if you default on payments, you could risk losing your home or savings.
Don’t take a payday loan.
Payday lenders make accessing cash simple and fast because they require very little documentation or proof of your ability to pay. But payday loans typically come with annual percentage rate (APR) as high as 300%. And if you can’t pay back within the set timeframe, you end up in a cycle of repayment that can go on for years with no end in sight.
Don’t borrow more than you can afford.
Before you borrow a significant sum of money, work out what your payment will be so you understand whether you can truly afford it. You’ll need to know the loan amount, interest rate, and term length to calculate your monthly payment.
Don’t borrow from friends.
Owing your friend money is the quickest way to make a friendship awkward. Suddenly, getting coffee together is seen as $5 that went to your latte instead of back in your friend’s pocket. It’s best to keep your financial situation private.
Don’t ignore your credit report.
If you get in a situation where you need to borrow money in a hurry, the last thing you want to deal with is inaccuracies on your credit report that affect your ability to borrow. It’s important to monitor your credit regularly and ensure you’re up-to-date on all payments. Maintaining a healthy credit score will set you up for success should the unexpected happen and you find yourself in need of extra cash fast.
Wondering if debt consolidation is the right step for you? Our Consumer Lending Specialists are available to help guide you to the right money-saving option for your unique needs. Call us at (888) 354-6228 to start the conversation. Click here to find more information about personal loans.
This is not an offer for an extension of credit or a commitment to lend.