While the reasons for getting a personal loan are varied, there are a handful of universal questions you should ask yourself before ever heading to the bank and applying for a loan.
Whether you are looking to refinance debt or pick up that new bedroom suite, opening a new line of credit via a personal loan is a major decision, and dignifies serious consideration.
Question #1: What Does My Credit Look Like?
Before anything else, you need to have a solid understanding of where your credit stands. What’s on your credit report? What’s your score likely to be when a loan officer pulls it?
Your credit is a numerical representation of who you are financially. Lending institutions use it to determine what type of borrower you are likely to be based upon your borrowing history. If your report is thin, or looks mismanaged, you might find yourself facing higher interest rates than if you have well-handled credit. Don’t get caught unaware; look into your credit before you do anything else.
Did you know you can get your free credit score through Quizzle? Click here to find yours out!
Question #2: What Are The Pros And Cons Of Taking Out A Personal Loan For This?
It is important to weigh the risks and rewards of opening a new line of credit against the actual cost of the product you hope to attain with the credit – even if you are refinancing debt, you should outline the benefits of opening another line of credit against methodically paying off the debt through more traditional means.
Remember, there can be times when getting a personal loan can be beneficial to your credit, just as it can be detrimental. It is up to you to determine which scenario fits your situation. If you are unsure, ask yourself the next few questions to help get a better picture of how a new loan will affect your financial profile.
Are you interested in taking out a personal loan to consolidate debt? Read what Quizzle has to say about debt consolidation first.
Question #3: Can I Afford The Desired Item Without The Loan?
Sometimes, lines of credit are opened in order to bolster your existing credit report. When used as a method to pay for something you can already afford (and then, subsequently, paying off the debt on time, every time, and in full), taking out a personal loan can give your credit a needed boost.
Public Relations Specialist with Quizzle, Jessica Genord, commented, “If you cannot outright afford the item without the loan, look at how much it will cost you over the lifetime of the loan.”
Genord elaborated, “Make sure to take into account how much interest you will have paid and all potential late fees.”
Question #4: What Are My Options?
Once you decide a personal loan is the way to go, it is important to know you have options as to from where you borrow. While there are securities in place to protect your credit from taking too big of a hit, know when you apply for a loan, your credit will undergo an inquiry.
These inquiries are where the lender pulls your credit in order to determine if they are comfortable lending to you at all, and if so, how much interest they will charge you. Your interest rate is determined in part by how solid your credit appears to the lenders.
Keep in mind, you can “rate shop” within a 30-day period and all of the inquiries on your credit will be considered a single inquiry. However, that single inquiry is likely to dent your overall score by a few points (and it will of course show up on your report). Take advantage of that 30-day window and do not feel pressured to limit your search for an ideal loan fit.
As with all things financial, it is important to understand the consequences of your actions (or inactions) and take every step seriously. Evaluate your financial situation honestly; get advice from a trusted advisor if necessary; educate yourself and above all, take control of your finances and don’t let them control you.