Personal loans are immensely popular among those who require funds, given that it doesn’t require collateral. What’s more, the loan amount can be used for pretty much any purpose, including to consolidate credit card debt, pay for a wedding, or to fund a home improvement project. If this is the first time that you are considering getting a personal loan, here are some dos and don’ts to keep in mind.
Dos
Check your credit score: Your credit score plays a substantial role in determining the rate of interest you will be charged on a personal loan. Lenders typically use your credit rating as a barometer for risk. Before you go ahead and apply for a personal loan, make sure to check your credit score and credit report, so you know what interest rate you can expect to be offered.
Compare the APR: The difference between a high and low rate of interest can be significant. That’s why we suggest you shop around and compare loans before you commit to any lender, as each is likely to weigh the information on your application differently.
Review the fees: In the relief of being offered a personal loan, you may overlook the fees, but this can be an expensive mistake. Before you sign on the dotted line, ensure that you review all the charges.
Don’ts
Accept the first loan offer you receive: Always shop around before you commit to a particular loan. Keep in mind that it is not just banks that are offering personal loans right now – you may also get a low-rate loan from a community bank, credit union, or online lender.
Take the maximum loan amount: We never recommend taking a big loan just because that’s what’s offered to you. While a large loan amount may seem attractive, paying it back can be a hassle.
Skip on payments: It’s best to either schedule automatic monthly payments or set up monthly reminders to help you pay your personal loan on time. Your payment history accounts for about 35% of your FICO credit score, so missing your payments or delaying them can really hurt your credit score.
