You may be thinking of making a large purchase but do not have the financing. You have exhausted all your savings. Your friends or relatives are not able to help out with a small term loan. You, therefore, speak to a financial advisor who tells you that you can apply for a personal loan. Many consumers are turning to personal loans, including personal loans for a large purchase.
The credits have provided a way of meeting financial shortfalls that may arise when one urgently needs money. It may be to purchase a vehicle, pay medical expenses, and take care of the children’s education, among others. Before you put pen-to-paper, there are certain things you should know. We will explore personal loans in greater detail below. At the end of it, you will be able to make that final decision on whether you want to apply for personal loans for a large purchase.
What Is A Personal Loan?
The simplest definition of a personal loan is any money you borrow from a credit union or an online lender. You will need to pay back in fixed monthly payments or installments. The repayment usually runs between 2 to 5 years. The lender you opt for will determine the rate, and it is generally within the range of 6% to 36% APR.
Most personal loans are unsecured, you do not need any collateral. Other loans require that you put up an asset in case you default. If you cannot pay, the lender can auction your items. In the case of an unsecured personal loan, the lender will not be able to sell any of your items to recover his money. The flipside is that the interest rate is usually higher then what you will pay on a secured loan. The lender does this to protect him from incurring losses if you do not pay. Financial experts will, therefore, advise that you go for a personal loan for expenses you intend to settle quickly. They may not be the best for long-term loans.
You may also refer to personal loans as installment loans because they have a fixed repayment term. As we have stated above, you will need to pay the loan within a maximum of five years. You will pay a fixed interest rate, which the lender will let you know upfront. You receive the money as a lump sum and agree with the lender on what you will pay in monthly installments.
How to Get Personal Loans for a Large Purchase
A personal loan is a fantastic way of getting yourself out of a financial bind. It is also a solution if you want to buy certain items. It does not matter whether you are taking personal loans for a large purchase, or a small one like buying a washing machine. The loan will provide you with the money you require while giving you sufficient time to pay back. However, have certain things in mind, and these include:-
Your Credit Score Matters
Qualifying for a personal loan requires that you have a good credit history. The credit bureaus will assign a score, usually within the range of 280- 850. Those within the range of 725 to 759 have a very good rating. Anything above that is excellent. The higher credit score will make your loan cheaper or more affordable for you. You may find that you qualify for an interest rate of 6.9%, which is below the recommended 11.8 percent.
Anyone with a low credit score may find that the interest rate is not very different from a standard loan. It could range anywhere from 10% to 35%. What it, therefore, means is that your monthly installments will be higher. It may thus become unaffordable, resulting in missed or late payments. The result is your credit score will continue to suffer, leaving a stain on your credit history.
When you are in the market shopping for personal loans for a large purchase, it is a good idea to consider the interest rate. However, ensure you factor in what the loan will ultimately costume in totality. Do not talk to one lender only; it will benefit you more to speak to several of them. If you find one who is offering very low interest rates, ask them to outline for you any additional fees you may incur.
Also, be careful about the terms and conditions because ignoring fine print may land you in a lot of trouble. When you know your credit score, you will have a good idea of the interest you will need to pay. You will find online calculators that can help you get an estimate.
Bad Credit Loans
You have decided to set up an electronic store. You are in the market shopping for personal loans for a large purchase, since you need to set up shop. Your credit score is not right, and you know you will not be able to qualify for a standard loan. Do not fret; some lenders deal with bad credit loans. Such consumer loan target people who have a limit on their borrowing options due to their credit history.
Lenders treat bad credit loans like personal loans. You will get the money upfront, but need to pay back within a fixed time. You can get the money from a bank, credit shop, and credit unions, online, among others. Other options include loans from retirement accounts, payroll advances, and even borrowing against your life insurance.
Unless it is an emergency, before you apply for a bad credit loan, see if you can improve your credit score.
There are specific steps you can take including:-
- Ensuring that your credit reports are correct – the credit reporting agencies may make mistakes which could give you the wrong score. if you find any error, report it immediately so that they can correct it
- Have a good understanding of your risk factors, for instance, not having a mortgage, taking on extra expenses to improve your credit score, among others. with more than 300 risk factors, you need to do your research well to know what can impact on your ability to improve your credit score
- Keep up with your the bill payments – late, or missed payments will stay on your credit report for seven years
- Pay due consideration to your credit utilization. It looks at how much outstanding debt you have on revolving credit sources. experts recommend that you keep it below 30%
- Apply for a credit card but make sure you use it wisely. proper usage of your credit card shows that you’re able to keep up with the payments and will reflect favorably on your credit report
Pre-qualifying will give you an indicator on the kind of offer you can receive concerning personal loans for a large purchase. Your lender may do a soft credit check to determine whether or not you are creditworthy. Do not worry; the pre-qualification check will not affect your credit history. The lender may ask you for certain information during the pre-qualifying stage including:-
- Personal details including your social security number, email, phone, and physical address
- What obligations you have e monthly including rent, student loans among others
- Your income level
- Employer details
- Parents names
- Educational background, among others
Do note; different lenders will ask different questions depending on what their requirements are.
It is during the qualifying stage that you will know whether or not you can get the loan. A lender may turn down your application due to one of the following reasons:-
- If your income level is too low
- You have a sketchy work history – too short or none at all
- A debt-to-income ratio that is above 20%
- If you get too many credit inquiries, especially those around credit card applications
If you do qualify for a personal loan, it is now time to start shopping loans.
What are the Qualifications For a Personal Loan
The eligibility criteria will depend on the lender and, therefore, vary. Typically they will look at your income level, credit score, your ability to repay, employment history, age, among others. A lender will, for instance, be more comfortable giving money to someone who has a regular income source. It could be a salaried job. You could also be in self-employment, but with the constant income flow. Do note a lender can turn down your application depending on who you work for.
Reasons Why You May Need To Take Personal Loans for a Large Purchase
There are various reasons why one may take a personal loan. Some will take personal loans for a large purchase, while others take it due to specific emergencies. Whatever the reason, the whole basis for going to a lender is because you need a money at a particular time. Some of the factors that may make an individual go for a personal loan include:-
- Personal loans for a large purchase
- Business expenses
- Down payment for a home
- Car purchase or repairs
- Home Renovations
- Medical expenses
- Family-related expenses
- Legal fees
- Financing for major appliances or electronic gadgets
- Personal emergencies, among others
Let us explore some of them a little more below.
Debt consolidation refers to putting together high-interest loans and paying them off at once. Of course, it will require that you have a significant amount of money to be able to do so. In this case, a personal loan will make a lot of sense. Make sure that the loan you take has a low-interest rate so that you do not find yourself back in serious debt.
If there is one thing that is very difficult to predict is a medical emergency. You never know when you or your family member may need urgent medical attention. A personal loan can help you sort out the unexpected medical bills.
You can also opt to apply for a personal loan for an elective procedure. Such include laser eye surgeries, dental implants, plastic surgery, among others. Insurance companies will more often than not pay for such procedures.
Certain events within the family would require money. If you, for instance, have a wedding coming up and do not want to depend on family members, you can apply for a personal loan.
You may also want to take your family for a vacation, but you do not have enough money as savings.
You may be relocating to a different town or city for whatever reason. There are individual costs associated with moving. Such include paying a deposit for your new place, hiring a moving van, paying for utilities among others. If you do not have enough money put aside, then you will definitely need to consider applying for a personal loan.
Despite your best intentions, sometimes you may not be able to make rent obligations. A personal loan will, therefore, provide you with a level of relief as you wait to sort out your finances.
Setting up a Business
Many people dream of owning their businesses but find that their finances do not allow. Taking a personal loan will help you with some of the setup aspects of the company. You may need to buy special equipment, and this will, therefore, be the best time to take personal loans for a large purchase
See If You Have Other Options
Personal loans for a large purchase will give you a quick way of getting what you need. However, as we have stated above, personal loans have high-interest rates. You may want to exhaust all other options before you apply for one. Such choices include:-
- Applying for 0% credit card – depending on your credit score, you can apply for, and get a credit card, which will charge 0% interest on purchases within a specific timeframe. The timeframe is usually within a year or slightly longer depending on your negotiation skills
- A secured loan will give you a better interest rate than an unsecured loan. You will, however, need collateral, for example, business equipment, a car or a house. If you own the latter, you can apply for a line of credit or a home equity loan which is a slightly cheaper option than a personal loan.
- If you can get someone with a good credit history to co-sign your loan, you may be able to get better terms.
Do Not Ignore the Fine Print
We cannot reiterate this point, and you will find us referencing it several times in the article. You must understand all the terms and conditions for the loan. Different lenders have different requirements, and you need to have a proper understanding. Be especially watchful for the following:-
- You may come across a lump sum and wish to settle your loan early. Some lenders will charge you an exit fee or prepayment penalty while others will not.
- Some lenders will insist on automatic withdrawals from your checking account. Setting up a low balance alert is a good idea so that you do not overdraw the account. Remember, your bank may charge you an overdraft fee, and you do not need additional expenses at this stage.
- Let the lender tell you upfront what the total cost of the loan will be. You may find hidden fees you did not factor in when taking the loan.
- Your lender should also make reports to the credit bureaus as it will help improve your credit score
- A lender who is flexible with payments will make it easier for you to make the payments. Very rigid one will penalize you for late or missed payments.
- If you are consolidating your debts, you should look for a lender who will pay your creditors directly
Applying For The Loan
Once you decide on your lender, it is time to apply for the personal loan. You will need to provide relevant documentation, including identification, email verification, and proof of income. Be ready for a credit check before getting final approvals. Getting your personal loans for a large purchase will typically take one week.
You can shop for a loan right here, right now. And you know that Loanry brings you ONLY reputable lenders. So, if you’re interested to see whether you qualify for a loan with one of our lenders, put in your information below and you’ll get offers in seconds.
Mistakes to Watch Out for When Taking a Personal Loan
You have chosen to take personal loans for a large purchase. Also, you have already started your research and are in the process of deciding on the lender. You need to be careful, though, there are certain mistakes you could make that could cost you. We will highlight them for you below.
1. Not shopping around for the best lender.
There is an unquestionable comfort in familiarity. You may feel that you only want to borrow from the neighborhood banks, or from those you are comfortable with. What you neglect to do is to find out whether their rates and terms are favorable for you. You need to expand your thinking to incorporate online lenders and credit unions. They usually have better rates than local banks.
Try and establish a relationship with the lender because trust is a vital element when it comes to money. Do not sign any blank documents; it may be a scam. There are so many options out there so you need to look at your situation and find the best one for you.
2. Not Knowing Your Credit Score
We have already highlighted the importance of knowing your credit score. You do not want to apply for a loan only for the lender to reject you. Also, take time to go through the eligibility terms. If you keep on applying and never get an approval, it will impact on your ability to get a loan in the future.
3. Not Negotiating the Terms
Think about applying for a personal loan in the same way you would when buying a particular item. No one says you have to accept whatever terms the lender offers you upfront. Play hardball and negotiate so that you get the best rates possible. And yes, the lenders have factored in that you may want to negotiate, so do not just settle for whatever they tell you.
4. Overextending Yourself
Taking personal loans for large purchase is expensive. You may borrow more than you can comfortably payback. Have it at the back of your mind that you will need to pay interest and any other additional costs. You will find that what you are paying back is significantly more than what the lender gave you.
5. Not Reading the Fine Print
We have discussed this at length above, under no conditions should you sign that form without reading the fine print. There is no shame in spending some time to understand the documents first before appending your signature.
6. Not Having a Good Reason as To Why You Are Borrowing
If you are taking personal loans for a large purchase, for instance for a business, it makes sense. If you are, on the other hand, just taking a loan because it feels good to have money, then don’t. Only borrow when it is essential, and you can not do without the money.
7. Keeping Your Family in The Dark
Yes, it is a personal loan, but you should let your spouse or close family members know when you are taking it. Not being able to meet the loan applications will have repercussions on yourself and those close to you. If for example, you take personal loans for a large purchase but are not able to pay back. The lender could seek legal redress to recover the money from you. Imagine how devastating it can be when your spouse to learn about the events only when the court processor serves you.
There are several reasons for an individual would want to take a personal loan. Taking personal loans for a large purchase is one of them. Before you apply for the loan, you need to take into consideration all the factors we have shared above. Remember, you will need to pay back this money and so you need to be clear about the reason why you’re taking it.
Work with lenders who are trustworthy, and who have your best interest at heart. Understand all the terms and conditions, because they will impact on the amount you finally payback. Most importantly, have a plan in place on how you will settle the debt. Since you already know the monthly cost upfront, it will only make sense for you to plan yourself accordingly. Late payment of missed payments will impact on your credit score. Poor credit score way ultimately results in an inability to get loans in the future.