10 Things You Need to Know Before Taking Out a Personal Loan

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At Credit Made Simple, you can consolidate all your various debts into one loan, clearing all outstanding loans and balances, be it credit card balances, home loans, or personal loans. We can help you to find the best loan with the ideal interest rates to serve you in this situation. At Credit Made Simple, we specialize in debt consolidation loans should you want to consolidate any outstanding loans and balances. Credit Made Simple is here to help you find a good deal should you need to consolidate your debts.

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Presentation Transcript

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Created By: Carrie Kirby

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 When you hear about interest rates in the media theyre often talking about the 30- year fixed rate for a standard mortgage which has been around 4 percent or lower for a long time now. But a personal loans interest rate will probably be at least twice that. The reason for the difference: When you refinance your home or take out a home equity line of credit youre promising to relinquish your home if you cant pay back the debt. Thats a bigger risk for you and less of a risk for the bank compared to a personal loan. In return banks give you a low interest rate on secured loans. See also: The Different Types of Loans: A Primer

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 With no collateral all the lender has to go on is your personal creditworthiness. You can expect the available interest rates to increase steeply if your credit is average or poor going up as high as 36 percent APR.

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 While the typical mortgage is paid off over decades personal loan terms are typically limited to seven years or less. This can be a good thing because you should never borrow money for longer than you really need to. But it also means that if you are trying to borrow a lot of money like for a major home remodel the payments might be too high for you to keep up with on a personal loan.

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 As nonprofits credit unions often offer lower rates and fees than banks for the same personal loan products. Then there are the crop of new "marketplace lenders" such as SoFi and Prosper which promise easy quick online loan approval and good rates especially to folks with the best credit. This nascent industry has had some bumps in the road but its still an avenue worth looking into.

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 When an urgent financial need rears its head — a leaky roof an emergency medical bill or heaven forbid an unexpected funeral — many people turn to credit cards or payday lenders for help. These lenders can be punishingly expensive but they may seem attractive because in such situations you just dont have time to sit down and apply for a home equity line of credit or look at refinancing your mortgage.

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 One of the most common uses for a personal loan is to consolidate existing debt like credit card balances student loans and car loans. You may be able to get a lower interest rate than you were paying on your other debts and you also have the organizational benefit of having only one bill to pay each month. However when transferring one kind of loan to another you should.

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 Some marketplace lenders heavily market the idea of refinancing student loan debt into personal loans. But before you make a decision like that you should compare your old loan and new loan carefully the Consumer Financial Protection Bureau warned in a 2016 release.

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 If youre trying to get a better rate on credit card debt while you pay it off before you commit to a personal loan shop around to see what else is out there. You may be able to transfer your balance to a card with a promotional 0 percent interest rate. Another potentially better deal could be taking money out of your retirement account for a short time especially if you have a Roth IRA. Just make sure to pay back whatever you borrow.

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 Some lenders will try to throw in an insurance policy or other extra expenses as you close the loan. You may or may not want an insurance policy to make sure that your survivors arent stuck with your loan if tragedy strikes but thats a separate financial decision that you should undertake with research not just because youre under the impression that its required for your loan. If the lender says it is walk away.

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 One of the nice things about a personal loan is that unlike a car loan or mortgage you dont have to justify your purchase to the lender. However there are things you should know better than to borrow for — whether its with a credit card a home equity line of credit or a personal loan.

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