Personal loans are very useful when you want to settle a debt or purchase something that you can’t afford. But make sure to avoid a personal loan with an expensive interest rate because that may lead you to a financial problem. Instead, look for one that has an affordable rate when you want to borrow money.
One lender may charge a different interest rate compared to another lender. Your credit score also plays a role on what will be the interest rate of your loan. To learn more, here’s a guide to getting a low-interest rate personal loan.
Secured and Unsecured Personal Loans
For beginners, it’s crucial to understand the difference between secured and unsecured personal loans.
Secured Personal Loans
A secured personal loan requires a form of collateral before the borrower can get the loan. The collateral that the borrower provides serves as a security deposit for the money that’s borrowed and protection to the lender in times of failure on the part of the borrower to repay the debt.
Examples of secured loans are car loans and mortgages which use the car and the house as collateral respectively.
Unsecured Personal Loans
In contrast to secured personal loans, unsecured personal loans don’t need collateral. The qualification for the loan will depend largely on the borrower’s credit score and income, which is advantageous because he/she doesn’t have to pledge an asset as a security deposit.
Lending companies that offer such loans will look at your credit history to determine your likelihood to pay back the loan on time. If the lender is confident about your capacity to repay the loan, you can get approval and you’ll receive the money in a lump sum. Then, you can use that money to finance whatever purchase you need.
You can check WorldPaydayLoan.com if you’re looking for unsecured personal loans to cover urgent expenses.
Things to Consider Before Making a Loan Application
There are other costs aside from the principal amount that you need to consider when repaying a loan. Depending on the lender’s policy, your monthly payment will include the portion of the loan amount, interest, and other fees. You also need to consider the length of time you’ll be paying the loan and ensure that it suits your financial situation.
The loan term is the whole period or lifespan within which you’ll be paying back the loan. It’s crucial to consider because it impacts the loan’s total cost. A personal loan with a shorter term commonly has a higher monthly payment, while a longer loan term comes with a lower monthly payment.
Keep in mind that the money you borrow will be charged with interest during the loan’s lifespan. It means that if you choose a longer loan term, the more interest you’re going to pay.
The interest rate is an important feature of a loan. As a borrower, it’s a must that you take account of it when borrowing money because it adds up to the loan’s total cost. The interest rate differs from one lender to another and by your credit rating.
Ask the lender about the additional costs that come with your loan. You can also read the loan agreement to find out what additional fees you need to pay. It’s common for personal loans today to have origination fees, prepayment fees, and late payment fees. You should know about these fees because they can add up the total cost of your borrowing.
An Essential Tip to Get Low-Interest Rate Personal Loan
You should get a free copy of your credit report before applying for a loan. As mentioned earlier, lenders will use your credit score in making a lending decision. Thus, it’s crucial to determine your credit score beforehand so that you’ll know if you’re creditworthy or not.
Some lending companies are strict when it comes to providing loans to borrowers. They have minimum credit requirements before you can avail of one of their loan products. If you have a good to exceptional credit rating, the lender will be more confident to provide you a low-rate loan.
If your credit score is bad, getting a low-interest rate loan is hard. Worse, your lender might not even approve your application, even for a high-interest rate loan. But you can always improve your credit to qualify for an affordable loan.
Where to Get a Personal Loan?
Personal loans are ubiquitous nowadays. You can apply for it through a bank, credit union, or an online lending company. Just make sure to prepare the requirements to ensure that your loan application goes smoothly. Also, read reviews about the bank, credit union, or online lender before you send your loan application.
Getting a low-interest rate personal loan is easy if your credit score is good. Thus, always check your credit score to determine whether you’re creditworthy or not. Also, consider the loan term and extra fees associated with the loan to know if it fits your financial situation.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.