Before You Take Out A Personal Loan, These Are The Things You Should Know
When applying for a personal loan, there are many things to consider. How is a personal loan different from other types of loans like mortgage loans or auto loans? What are the uses of personal loans? What are the alternatives to personal loans?
Investopedia interviewed Linda M. Hooks to find out the answers. She is the head of the Department of Economics at Washington and Lee University, Lexington, Va. Hooks is the head of Washington and Lee’s largest department. She has also published research in many economic areas. The edited conversation is below.
How personal loans differ from other types of loans
Investopedia – What is a personal loan? How does it differ from other types?
Hooks A personal loan is a loan with a fixed monthly payment for an individual consumer. A borrower takes money now and then repays the loan over a set time frame by making monthly payments of the same amount. It is very similar to a mortgage payment or car loan. This loan is not like other types because it does not require collateral or an item such as a home or car that you agree to forfeit if your repayments are not possible.
Investopedia – What can personal loan funds used for?
Hooks Personal gladloan.com can be used for many purposes. These loans can be used to purchase large items that are not possible to pay cash for, like a new appliance or air conditioner. Sometimes they can be used to consolidate other debt. They can also be used to pay for special trips, medical bills, and educational expenses.
Investopedia – What are the requirements to apply for a personal mortgage?
Hooks – As with all loans, you must have a good credit record. It is possible to use collateral to obtain a personal loan. This could help you qualify for a personal or lower rate. Ask your bank if you can use any other collateral such as savings or insurance policies.
Investopedia – Where can one find their credit score and how much does it cost?
Hooks – Generally, it is possible to obtain a score by paying a fee. However, you can obtain a free credit report from the website AnnualCreditReport.com. The Federal Trade Commission website Free Credit reports has additional information. Your credit report is what determines your credit score. You don’t need to see your actual credit score as long as it looks correct.
Factors that Determine How Much You Are able to Borrow
Investopedia – How can lenders decide how much people are allowed to borrow?
Hooks – To determine the maximum amount a borrower can borrow, lenders look at your credit score and other factors like collateral or a financial relationship.
Investopedia – What are some ways you can improve your chances of being approved?
Hooks – If you are denied a federally protected application, you can ask for the reason. This information can help you make a decision about what to do next. Low credit scores are often the reason for denial. You can improve your score. Paying your bills on time is one way to improve credit scores. Another step is to pay the minimum amount on a credit card. If possible, you should pay more. Don’t charge more than your credit card allows. Keep the balance below that limit.
Co-signers and Early Payment, Other Loan Options
Investopedia – Can you repay a personal loan early or is it dependent on the terms?
Hooks – Early repayment may be possible depending on the specific loan. Before you sign the loan documents, ask if there are any penalties for early repayment.
Investopedia: What’s a cosigner? And when would a borrower require one?
Hooks A co-signer is an additional person who agrees to repay the loan in case you are unable. A co-signer is someone who will help someone with limited credit to get a loan. The co-signer must be aware that they will be responsible for the loan just like they would for their own loan. This could also impact the co-signer’s credit score and credit history.
Investopedia – What are the alternatives to a personal mortgage?
Hooks – Alternatives to personal loans might include a home equity loan and a credit card. If the purchase is planned, you can save money and then buy the item once you have the funds.
Borrowers have protections
Investopedia – Where can you complain if your lender is acting illegally or inadequacies?
Hooks The Consumer Financial Protection Bureau was created under the Dodd–Frank Act 2010 in order to provide resources and a forum for consumers to complain about financial services. The website is www.consumerfinance.gov/.
Investopedia – What happens if your financial situation is not good enough to pay off your loan?
Hooks – If you have financial difficulties and are having trouble paying your loan, you should contact your lender immediately. You may also be eligible for federal programs. Information on these programs can be found on the CFPB website.
Investopedia – What last words of advice would you give to someone considering a personal loan.
Hooks – Consider carefully whether you would like to obtain a personal loan. In certain circumstances, it might be a good idea to skip a personal loan in order to get a mortgage on your home.
Where can I get my credit score?
According to the Consumer Financial Protection Bureau, (CFPB), there’s four ways to improve your credit score.
- Review your loan or credit card statements. Credit card companies and major banks will show you your credit score each month.
- Talk with a non-profit credit counselor.
- Get a credit score. You will need to sign up for an account. Some services are free, while others are paid for by advertisers.
- You can buy your score from credit reporting companies. Your score can be purchased at myFICO.com.
Is there a penalty for paying off my personal loan early?
It all depends on your loan terms. Before signing up for a loan, it is wise to inquire about any penalties, including early-payoff penalties.
Which is better: a private student loan or a personal loan?
Private student loans have lower interest rates, offer more flexibility in repayment and allow you to deduct interest payments from your taxes. A private student loan may be the best option if you have to borrow money for college or college expenses. A personal loan might be the best option if you have other expenses not related to school.