A personal loan is a kind of installment loan, in which you will get money from a particular bank or other lender and pay it back at a stipulated period of months or as agreed.
Most times, the period required to pay off the debt may take up to two or five years while the interest rate is usually fixed over the entire life of the loan.
Maybe you are running into a financial problem and you think that acquiring a personal loan is the best way for you to borrow money, then I will advise you to consider the following things that we will discuss on this page below taking a step forward.
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Types of Personal Loans
As for me, I don’t think that personal loans should be categorized into any type but howbeit, personal loans have been classified into two different types which are;
- Secured Personal Loans
- Unsecured Personal Loans
Let’s take a look at what the two terms stand for before making a choice.
1. Secured Personal Loans
This is a type of loan that you will offer the bank something of value as collateral, such as your house, car, or the cash in a CD or savings account.
However, secured personal loans is rarely practiced.
NOTE: Failure to make your payments will lead to the bank seizing your collateral to pay off the loan.
2. Unsecured Personal Loans
This type of loan does not require any form of collateral, rather, the bank or lender will check how much you have make in the last months to know if you are qualified for the loan or not.
This is the most practice type of personal loan but it riskier for the bank, they tend to come with higher interest rates.
4 Things to Do Before and After Getting a Personal Loan
1. Make Sure the Lender Is Legit
There are a few simple ways to sort out a real personal loan offer from a scam. First, make sure the lender is registered in your state. You can find this information on the lender’s website or by contacting your state attorney general’s office.
Also, watch out for obvious red flags. If the lender’s website isn’t secure or doesn’t provide a street address, that’s a sign the business is fake.
Other warning signs include a lender who doesn’t check your credit history, asks you to pay the origination fee with a prepaid debit card, or pressures you to apply today because it’s a limited-time offer.
2. Compare Multiple Offers
Before taking out a personal loan, compare offers from multiple lenders. Most lenders will let you check out their estimated rates and fees before you actually apply.
Don’t just look for the lowest APR; compare the total cost of the loan, including fees. To save time, consider visiting an online loan marketplace, such as NerdWallet’s, where you can compare loan offers from different lenders at a glance.
3. Make Sure You Can Afford It
Remember, when you take out a personal loan, you’re committing to pay it back on time. If you fail to meet the payments, you could lose your collateral or end up in court. So, before you sign on the dotted line, check your personal budget and make sure you can afford to make the monthly payments.
4. Keep It Short
Longer-term loans sometimes look more affordable than short-term ones. The monthly payments are lower because you’re spreading them out over a longer period, and the interest rates are usually lower as well.
However, in most cases, the longer you spend making payments on your loan, the more you’ll pay in interest altogether. In the long run, you’re better off taking out the shortest-term loan you can manage the payments on.
5. Pay It Off Promptly
If your loan does not have a prepayment penalty, you can save on interest by paying it off faster. You can make extra payments whenever you have some spare cash, or just tack a little extra on to every monthly payment.
Also, check to see whether the lender is willing to offer you a small discount on the interest for enrolling in paperless billing or autopay.
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