Taking Credit: Everything You Need to Know about Personal Loans
Saturday, July 30, 2016, 6:00 PM | Leave Comment
Once reserved primarily for borrowers who couldn’t get loans any other way, personal loans have become a popular product used by almost everyone.
They are perfect for consolidating debt, paying for a wedding or even making a large purchase.
What should you know about personal loans before applying for one?
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When Should You Use a Personal Loan?
The answer to this question will depend on your current credit situation, financial resources and your ability to repay the loan in a timely manner.
For instance, if you need $30,000 to pay for college, it may be better to get a student loan as they come with lower interest rates and better repayment options.
However, if you need $30,000 and have good credit, a personal loan from a company like Saginaw Medical Federal Credit Union could be the better option—so long as the interest rates aren’t too high and there are no hidden fees.
This is because you won’t have to use your house as collateral like you would if you were applying for a home equity loan or line of credit.
You also don’t have to worry about your interest rate going up like you may if you paid for it with a credit card.
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When Should You Avoid a Personal Loan?
As with any loan, you should avoid taking out a personal loan for unnecessary expenditures if you don’t think that you can afford to pay it.
This means that you shouldn’t borrow to pay for a frivolous expenses such as the vacation that you want to take or that new home theater system you just can’t do without.
You should also avoid using a personal loan to start a business or other investment venture.
You are still liable for paying it back even if the business fails or your investment plan doesn’t work out.
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Information About the Loans May Be Reported to Credit Bureaus
If you are hoping to get an unsecured personal loan, expect a credit check before getting your application approved.
While this may seem like a hassle, it can actually work in your favor, as your loan is more likely to be reported to credit agencies.
Each payment that you make on time will increase your help you build a positive credit history and increase your credit score.
Therefore, if you have poor or no credit now, a small personal loan can be an effective way to establish yourself to lenders and others who use your credit information to make decisions about your future.
If you want or need to borrow money, a personal loan may be worth your while.
However, make sure that you research loan rates and other terms to make sure that you can afford to repay it in a timely manner.
Otherwise, your credit and your finances could be ruined for years to come.
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