Important Questions to Ask Before Getting a Personal Loan
Between all the financial alternatives you can consider, a Personal Loan is the deadliest. Make use of personal loans appropriately and they may very well be the ladder out of your economic ditch. Make use of them wrong and it’s like attempting to put out a house fire with gasoline. Here, we’ll take a look at some of the most important factors before taking a personal loan:
Personal Loans vs. Other Loans
Personal loans are generally not secured with high-interest rates, which make them just like credit cards. Nevertheless, the loan tenure can last for a couple of years: 3 to 5-year loans are not unusual especially for education and renovation. Interest rates for personal loans differ greatly accordingly with the loan’s tenure and quantum.
Personal loans are unspecific. Unlike auto loans or educational plans, the bank simply lends you the amount, without verifying what you desire it for.
Cash Mart suggests that prior to getting a personal loan, consider the following:
- Would a different type of loan be cheaper?
- Are you spending or investing the money?
- Will you be over-leveraged for other loans?
- Do some other banks give better rates/benefits?
- Are there better options?
Would a different type of loan be cheaper?
There’s a good reason why we have loans that are fit for a specific purpose; e.g., without a doubt, it is possible to get a personal loan to purchase any one of those things.
However certain loans often have lower interest rates and have much more benefits. For instance, if you currently have a home loan from a bank it is possible to typically get interested free renovation loans on top. Such a renovation loan could be a lot cheaper compared to a personal loan.
In case you’re self-employed, refrain from making use of a personal loan as a de-facto business loan.
Business loans are a pain to apply for; the credit officer requires a lot more questions than homeland security. However, as soon as approved, business loans often have reduced interest rates when compared with a personal loan.
Nobody can prevent you taking a personal loan, and then putting the money into your business. Nonetheless, before you do this, at least make sure to talk about business loans with the bank.
Are you spending or investing the money?
Are you currently taking a personal loan to purchase stocks, precious metals, or make some kind of investment?
Then it is highly recommended you try more secure activities, such as chainsaw juggling or maybe naked bear wrestling both of which are considerably less risky.
Kidding aside, investing money from a personal loan is contradictory and itself ironic. If you don’t have enough money to save up for an emergency fund, and even money for investing, don’t even try to get a loan to get those in line.
In addition, a couple of investments appreciate more quickly than a personal loan’s interest rate. Although you may not go broke, you will most likely suffer a loss.
Will you be over-leveraged for other loans?
Refrain from taking a personal loan within 3 months of other loan applications. For instance, a home loan, let’s suppose you’re planning to buy a house the following month, and haven’t acquired a home loan yet.
You need 20% down-payment for the house, which can’t be included in the home loan. Hence, you make an application for a personal loan to take care of the 20%, and it’s approved.
After the personal loan is approved, you make an application for the home loan.
Remember that your personal loan will make worse your DSR. So when it does, you can’t borrow just as much as you’d like.
Do some other banks give better rates/benefits?
Different banks provide different rates and amazing benefits. A few Instances are “interest-free” months or lower interest for active customers. To get information on which bank has the finest offer to suit your needs, call them and compare their offers.
Are There Better Options?
In the same way, if you’re purchasing an expensive item like a piano, talk to the retailer and see if they allow an installment plan; this will likely end up being cheaper than the bank’s personal loan.