When financing everyday life becomes difficult, you start thinking about ways to help your situation. For many people, a personal loan would solve most of their problems. But, it is important to be well informed about the entire process. There is a path you have to take to get the money transfered to your account. And if you want to reach that end goal, you should know about all the steps. So this is why we are discussing some of the reasons you may need or want a personal loan, as well as can you decide not to take it if you start the process and see that it is not for you.
Why Would I Want A Personal Loan?
There are any number of reasons we look into personal cash loans. Yours may not be the same as mine. That’s why they’re called personal loans.
One of the most common is to consolidate debt and lower your overall interest rate. If you have two or three credit cards with balances on them, a year of car payments left, and one or two other expenses you need to pay soon, a personal loan can pay off everyone else and lock in a lower rate than you were paying on most of your debt. Then, instead of juggling a dozen bills every month, you’ll have one.
Sometimes the issue is medical expenses or unexpected repairs. These are the sorts of things which come out of nowhere and often leave us emotionally and financially drained as we try to figure out how to take care of those we love without losing everything we own. Depending on your circumstances, the right personal loan can help you pay off these unpleasant expenses and regain some control of the financial part of the situation.
Travel or Wedding
Not all expenses are bad, of course. You may be planning a family vacation or a wedding. These can be times of great joy and lasting memories, but that fun comes with a price tag. It’s up to you to weight the costs and the benefits. If you decide to move forward, a personal loan can make the experience more manageable than maxing your credit cards or bouncing a few checks.
We can’t always control what life throws our way, but we do have some choice in how we respond. Sometimes a personal loan can save you money by helping you manage your debt and retain some control over how you move forward.
Do I Have To Accept a Personal Loan Offer?
The short answer is no. Until you’ve signed, with ink on paper or electronically, everything you’ve negotiated is just that – negotiations. You’ve asked for a certain amount; the lender has offered you specific terms, including an interest rate based largely on your credit rating. But yes, you can walk away at any point before you’ve signed or otherwise officially agreed to the personal loan terms being offered.
Do I Pay Fees If I Don’t Accept the Loan?
Keep in mind that if you’ve agreed to any processing fees or other charges along the way, those may not be refundable. These aren’t meant to be secrets. Any reputable lender will be very clear and specific about set-up fees or other costs along the way. It’s up to you to pay attention and make sure you notice if and when they do. Remember, it’s not unreasonable for the lender to charge a small fee for their time and effort. Even if you decide not to go forward with your personal loan.
Will It Influence My Credit Report?
It’s also possible that a “hard inquiry” will show on your credit report even if you decide not to accept the personal loan. Lenders getting serious about you as a client will generally run a credit check on you, and this shows up in your credit history. Unlike “soft inquiries,” like the sort made by landlords deciding whether or not to rent you an apartment or a potential employer wondering if you’d be a reliable employee, “hard inquiries” impact your overall credit rating. One isolated inquiry won’t make or break your entire credit history, but repeated efforts to secure personal loans or other funding, especially if they don’t lead to actual borrowing and repayment, will ding your credit pretty good over time.
Reasons To Reject A Personal Loan Offer
The most obvious reason is that you’re not happy with the terms. And hey – this is the 21st century. This isn’t your father’s personal loan world with you, clean-shaven and nervous, wearing your best tie, sitting in a bank lobby waiting for some shiny youngster with a name like “Chad” or “Hunter” to allow you to beg while they look professionally distant and pretend to consult their supervisor just to let you sweat.
You’re the customer. Whatever your credit score, you have the right to hold out for decent terms and attentive service from any lender you’d consider doing business with. You may not get everything you want, particularly if your credit report needs some work, but lenders can and will compete for your business. If you’re working, or have some other source of reliable income, and you can pull together a few basic supporting documents to show you’re who you think you are, you should be able to get a personal loan you’ll be happy with.
If not, there’s no crime in walking away. Be polite and professional; you never know when you’ll need this lender and these people keep notes on everything. You don’t have to buy a computer just because you enter an electronics store and you don’t have to take home a new outfit just because you walk around the mall. Similarly, you don’t have to take out a personal loan just because you did some shopping.
That said, there are times people walk away from loan offers which aren’t driven by capitalist gumption. At the risk of horrifying or offending you, please allow me to address a few less-justifiable reasons to walk away from a loan offer.
You Weren’t Prepared
The lender needs information you don’t have and suddenly it all seems like too much trouble. This isn’t a problem with the loan process; this is Adulting 101. If you’re going to apply for a loan, you should recognize in advance that you might be asked for proof of income, verification of identity, or other personal information. You’re asking someone you’ve never met to transfer thousands of dollars your way. Is it so crazy they’d like to have a reasonable idea of who you are and how to get ahold of you if anything goes wrong?
You’re Not Sure How Much You Need
This is a preparation problem as well, but far more basic. Why are you borrowing to begin with? If it’s a bill consolidation loan, what are your total debts at the moment? If it’s for a vacation, a wedding, or a remodeling project, where’s your budget and estimates? Borrowing should be far less starched and joyless than it was a generation ago, but it’s still a big step with serious long-term repercussions. Put on your big-person panties and do the math ahead of time, friend.
You’re Not Sure How You’ll Pay It Back
This is the same issue from another angle. Adulting. Preparation. Math. Grown-up life isn’t all pizza delivery and wandering around the house in your underwear. I mean, you can do that if you like, but the flip side involves being responsible and thinking things through and all that other stuff that’s not very rock’n’roll, but is pretty much essential if you want to avoid moving back into your mom’s basement when you’re 40.
Not that there’s anything wrong with that… we just want it to be a choice, and not because we refused to use a calculator.
If it sounds like I’m scolding anyone, that’s not my goal. Believe me, whatever poor choices you may have made here and there along the way, I’ve made worse ones, and more often. I’d like to help you make fewer of them, especially when many of them are so avoidable. Getting this deep into the loan process before you realize you’re not sure whether or not you’re ready to take out a loan is avoidable.
What Should I Consider Before Applying For A Personal Loan?
That’s a great question. We’ve already covered three – how much do you actually need, what documentation should you should have available, and how much can you realistically afford to pay back monthly? I probably sounded a little snippy about those before, so I won’t belabor them here. Please know, however, that I’m just trying to look out for you because I’ve been there.
OK, I lied – but just a little bit. I’ll belabor documentation, the most boring part of the process.
See, I’m the guy that feels perpetually blindsided when asked what year I got married or when we moved to such-and-such place. I know where I’ve worked over the years, but I have to look up starting and ending dates and salaries and contact information every freaking time. It’s embarrassing. Take an hour and gather some pay stubs, work history information, etc. Don’t panic if you’re asked for something you don’t have in front of you, and don’t be surprised if you’re not asked for half of what you’ve prepared. But what harm can it do to have that sort of thing compiled in some easy-to-reference way just in case?
Here are a few other things to ask yourself before going personal loan shopping:
What’s Your Credit Score?
This is easy to check, and it should give you a much better idea of what sort of interest rate and other terms you should be able to secure. The two most popular credit score models are FICO and VantageScore.
If your FICO score is below 580 or a VantageScore below 500, it’s going to be difficult for you to get credit, even on unfavorable terms. It might not be impossible, but expect to encounter low limits and high interest. Do what you gotta do, but you should be prioritizing improving your credit rating as soon as reasonably possible so that you have more options next time.
If you FICO is between 580 – 670 or your Vantage lands somewhere between 500 – 660, you’re going to face some challenges, but a personal loan isn’t out of the question. While you should always check with your local bank or credit union, you’ll definitely want to explore a personal loan online. Online lenders generally have greater flexibility and are often willing to take greater risks. The tradeoff, of course, is that you’ll probably pay more in interest and fees than you’d like. That doesn’t mean you should resign yourself to the first offer made; you should still shop around for the best personal loan terms available to you right now.
A FICO above 670 or a VantageScore above 660 means you can afford to be a bit more selective. Anything above about 750 on either scale and chances are you’re already set for financing for just about anything that might come up. That doesn’t mean a life without problems (oh that it were that easy!); it just means more options when it’s time to deal with those problems.
And that ain’t nuthin’.
By the way, a personal loan can actually help to improve your credit score. You probably don’t want to take out a loan solely to bump your credit rating up a few points, but since you’re borrowing anyway, keep in mind that making your payments on time and otherwise staying in good standing with the lender means that six months from now, your credit report will look better than it does now. By the you pay off the loan, it will be even better.
There are other factors, of course, but responsible use of personal loans is one important step in moving from ‘poor’ credit to ‘good’, or from ‘good’ to ‘excellent.’
What Are Some Different Types of Personal Loans?
Obviously there are dozens of possible reasons for taking out a personal loan. Presumably you’ve encountered one or more of these since you’re looking into it to begin with. There are specialized loans for many common situations in which people might need to borrow and which you should definitely consider if your circumstances suggest it. We need to get over our fear of asking questions about personal loans. We’re the consumer. It’s our right to understand what we’re getting into. Period.
Before taking out a personal loan to pay for anything related to post-secondary education, fill out the FAFSA and talk to a financial aid specialist at whatever institution you’re hoping to attend. Federal, state, and private aid is available for all sorts of things other than traditional four-year degrees. You may not qualify for all of it, but you might. You should at least look into it before borrowing on your own.
Every car, truck, motorcycle, boat, and airplane dealership has their own preferred network of lenders. Don’t assume they’re the best way to go, but sometimes they are. Depending on how desperate the dealer is to move product, you may find Zero Interest offers or other unbelievable terms which make it worth your while to finance through them rather than with a personal loan or other financing you arrange on your own. Always read the small print and pay attention to the details, but consider all options before signing one of them.
In recent years, several companies have begun issuing medical credit cards which allow you to pay off unexpected medical expenses over longer time periods. The interest rates vary widely (some are rather high), and not all medical providers accept them, but it wouldn’t hurt to explore a few options. As with anything, read the small print and don’t be afraid to ask questions. If they’re legit, they’ll answer as many of them as you have.
Whatever you want to use your personal loan for, make sure you find a credible lender. What if we tell you we can find offers for your right now? Loanry is a service that finds real, personalized offers for you, made by reputable lenders. By providing the required information in the form below, you allow us to match you with an offer of a lender with whom you actually may get a loan.
What Other Varieties of Personal Loans Are There?
It’s not all about purpose. There are several types of personal loans you should be aware of before you commit.
Unsecured and Secured
Most personal loans are unsecured. That means you’re not putting up specific collateral as guarantee for the loan. If you default on the loan, the lender will most likely turn you over to a collection agency and it’s all downhill from there, but they don’t automatically get your car, your house, etc. There are secured personal loans, but whatever you put up for collateral could potentially be seized if you fall behind on your payments.
Fixed and Adjustable Interest
Most personal loans are fixed interest. That means whatever interest rate you agree to when you sign off on the loan is the interest rate for the life of the loan. The obvious advantage to this is the stability. Every month, your repayment amount is probably going to be exactly the same, no matter what else is going on in the financial world at large. People do sometimes secure personal loans with adjustable interest. This means the interest rate is tied to national rates. It may rise and fall over the life of the loan. This might save you money over time. Or it can cost you substantially more than you anticipated when you took out the loan.
The other “type” of personal loan to consider is the source of the loan. As I said before, you should absolutely check out your local bank or credit union. Sometimes they offer great terms – especially those of you lucky enough to belong to a particularly good credit union.
Some of you have family members who may offer to loan you money at a lower interest rate than any financial institution can match. It’s impossible to generalize about these sorts of personal loans because they’re so, well… personal. The only suggestion I’d make regarding loans from family or friends is that you write up a specific agreement. Include interest and repayment terms, sign it, and do everything in your power to make those payments consistently – every time.
You know your family dynamics. You know your circle of friends. If your gut tells you it’s a bad idea, then it’s probably a bad idea. If you feel good about it, then go for it – but don’t drop the ball on this one. Your credit report matters, but there are things that matter more.
Finally, don’t neglect the amazing range of online lenders available to you in the 21st century, however. Obviously you don’t want to pick one at random; the internet is still the “Wild West” in some ways. But one of the services we provide, and on which we pride ourselves the most, is our ability to connect you with reputable online lenders after gathering some basic information about what you’re looking for and what you need. Don’t be afraid of finding a personal loan online, especially if you think the terms are better for you.
We don’t loan money ourselves – we’re about the education and the connections. They want your business; you want a personal loan. Obviously we hope it works out, but if you decide to go another direction, we’re still happy because you’ve been presented with more options and made the choice that seems best to you.
Not to get all sentimental about it, but we get all warm and toasty about that kind of thing here. It’s fulfilling.
For you it can mean a much more convenient loan experience. The turnaround time tends to be much shorter than with conventional institutions. And you don’t have to clean up or put on a tie to apply. Honestly, you could do it in your PJs while sipping coffee out of your Spongebob mug.
Then again, I don’t general like to make important personal decisions in my PJs. Maybe you should go ahead and shower and put on real clothes first. But you can still have your coffee and fill out your info at your own desk or from your favorite recliner instead of browsing old golf magazines in the bank lobby – so that’s pretty cool.
What Should I Ask If They Offer Me A Personal Loan?
Some of the most important questions come before you begin applying, but several only occur once you’ve been offered a loan. You may be understandably relieved or excited and just want to get things finalized so you can move on, but there are a few things you should double-check before committing yourself to even the best-sounding offer.
What Fees, Charges, or Penalties Are There?
Reputable lenders will usually be upfront with any fees or other costs wrapped into the loan process, but it’s still a good idea to make sure you’re absolutely clear on what you’re being charged, and for what purpose. Just as important, you should ask them to specifically identify the section of the agreement that addresses late payments or other unexpected difficulties. None of us plan on being late, and you may worry that you’ll sound like you’re planning on blowing them off if you ask about it first thing, but stuff happens – and it’s important to know how they handle such things.
Some lenders have a grace period built in around due dates. Or some other policy indicating they’re not looking to penalize you too greatly for a late payment here or there. Others, though, have substantial penalties written into the contract language. Being a few weeks late a few times a year might add to your balance substantially. Or it can trigger an interest rate increase, or any number of other things. Make sure you know what those are.
Why Should I Care About Personal Loan Interest Rates?https://t.co/tUeyRSMdMU
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Is There A Penalty for Early or Over-Payments?
It sounds crazy, doesn’t it? The idea that you might be penalized for making your payment too early? Or for paying extra? Or even paying off the loan ahead of schedule?
Different lenders treat these things in very different ways. Keep in mind that while of course they want you to pay back the amount they loaned you, their profit comes from the interest you’re paying on top of the amount of the initial personal loan. That means they make more when you take the full term of the contract to repay the loan. And while they’d never put it this way, they’re not always all broken up if you’re late a few times along the way as long as you keep paying, because those late fees and additional interest are more money for them.
You can’t blame them. They’re not evil for wanting to make a profit on your loan. Restaurants are hoping your order alcohol or desert for the same reasons – they make more that way. As long as everyone’s honest about the terms and expectations and follows through on what they’ve promised, that’s just capitalism in action. They want you to pay the loan off successfully; they’re just not in the same hurry you are to get there.
Who Do I Contact With Questions?
Most personal loans have repayment terms of a couple of years or more. We don’t know what might come up during that time. Or what questions you might have for your lender along the way. I like to clarify up front the best way to reach my lender. And also how quickly I can reasonably expect a response. It’s not a guarantee of anything. But how they handle this question at the beginning of the process is often a pretty big hint how they’ll handle any effort I make to reach someone there a year from now.
Alright. You’re set. Where you go from here is up to you. I’m sure you’ll make the best decision you can for your specific circumstances. In the end, that’s all any of us can do.
Let us know if we can help.
Blaine Koehn is a former small business manager, long-time educator, and seasoned consultant. He’s worked in both the public and private sectors while riding the ups-and-downs of self-employment and independent contracting for nearly two decades. His self-published resources have been utilized by thousands of educators as he’s shared his experiences and ideas in workshops across the Midwest. Blaine writes about money management and decision-making for those new to the world of finance or anyone simply sorting through their fiscal options in complicated times.