Taking out a personal loan or credit is one of the best ways to pay for either an unexpected expense, or an expense that is simply too much for you to be able to afford.
If you have good credit, then finding a bank or other lending institution to offer you a personal loan is not difficult. Before you do this, however, be aware of these three tips as they could help you get the most out of any personal loan you get.
Shop around for the best interest rate — As most personal loans do not require you to put up your house or your car for collateral, the interest rate you will be given on the loan is usually quite high. This is the main drawback of taking out a personal loan.
To make sure getting a personal loan is a positive experience and not a negative one, therefore, shopping around for the best interest rate is key.
Interest rates can be anything from eight percent for someone with an excellent credit rating to more than 25 percent for someone whose credit rating is poor.
No matter which end of the scale your credit history falls on then, always spend enough time trying to find a low interest rate before committing to any loan.
Fixed interest rates versus flexible rates — In most cases, taking out a personal loan with a fixed interest rate will be much more advantageous for you long-term.
This is because, while a flexible rate may be very low to begin with, there is no way of knowing what that rate could change to after an initial short period of time.
With a fixed interest rate, however, while it may be higher than a flexible interest rate at the beginning, you will usually end up paying less interest over the term of the loan.
A home equity loan — If you have both a good credit rating and own a home, you could be better off applying for a home equity loan instead of a straight personal loan.
This will allow you to get a much lower interest rate, as home equity loans consider your house as collateral.
The important thing about this type of loan, however, is you should be very sure you will be able to afford to pay off the loan during the agreed upon period of time.
If you cannot, you could quite easily see that lower interest rate loan not only increase rapidly as the bank realizes you will be late paying it off, it could even end up in a situation where you lose your home.
In other words, while taking out a home equity loan can be an easier way to get a loan, be absolutely sure you will easily be able to afford to repay it before signing on the dotted line.