Getting a loan can be a quick way to acquire those assets that would otherwise take you years to save for. You may not be able to spare a couple of thousand dollars to buy a car at the end of this or the next month, but a loan can ensure you enjoy the convenience it brings immediately.
An abrupt and dire medical emergency that goes beyond the limits of your savings can also be alleviated by a loan. It can also enable you to afford that holiday you’ve been dreaming of taking your family on. Loans open up great possibilities, helping you take advantage of opportunities and address pressing needs in a timely way. With the advent of mobile lending, you can get your loan in a matter of minutes.
However, with every loan comes monthly repayments and the added expense of interest along with administrative fees. A loan taken to plug in a financial hole can take on a life of its own and begin to exert serious strain on your finances. It can also end up damaging your credit history.
Here are some considerations to take into account before you apply for a loan.
Type of Loan
Every other day banks and other lenders are coming up with products that they say are tailored to meet different needs. There are loans for just about every need under the sun. If you need a car, you can shop for auto loans from banks, online lenders, or a local car dealership.
If you need to pay for a medical procedure not covered by your medical insurance or buy that pricey double-door refrigerator, a personal loan will come in handy. This type of loan can help you finance your dream wedding or take care of those large-scale renovations your home requires.
Of course, today you can find different types of personal cash loans online for different purposes.
Student loans have been vilified in some circles for exerting undue financial strain on working Americans, but they have helped many kickstart their careers with the required educational foundation.
A payday loan or a payday loan alternative can help meet a pressing need that cannot wait for your next paycheck. Every loan offers its own benefits and comes with its own terms and conditions. Make sure you fully understand the requirements and all the attendant fees before you sign up, especially considering the high interest rates of these short-term loans.
Unless you’re borrowing from a friend or family member, your loan will require you to pay interest at a predetermined rate. This interest will be tacked onto your monthly payments and can either be fixed or variable. A fixed rate of interest will remain the same throughout the life of the loan. As its name suggests, a variable interest rate fluctuates depending on various factors.
Most online lenders will offer loan applicants a calculator to see how much the interest will be in terms of repayments. This will help you plan and stay in control of your loan.
The type of loan you apply for will determine when and how disbursement will be done. For same-day or online loans where the amounts are usually $500 or less, the payout can be done in a matter of minutes. But when taking out a mortgage, you will be lucky for the approval process to be done and the money disbursed in a month.
The payout in the case of a mortgage will go directly to the property seller or developer. It won’t be deposited into your account. The same applies to car loans processed through formal lenders; they will give the check to the dealership as you are handed the keys to the car.
In the case of mortgages and some car loans, the lender will not pay out the full amount of the item. You will have to raise a small deposit to add to the 80 or 95 percent financing provided by the lender.
Secure or Not
Personal loans come in two forms; secured and unsecured. For the former, you will be required to offer the lender some form of security they can hold onto until you complete your repayments. Usually, this security, or collateral, will be a deed showing your ownership of a property.
The implication is that if you fail to meet your end of the deal, the lender gets to keep the asset you offered as collateral. It is a risk you have to live with, but it comes with the benefit of lower interest rates.
The term, or tenure, of a loan, is how long the lender is willing to give you to finish repaying the loan along with the interest. The longer the tenure, the lower the repayments will be, but you end up paying more in terms of interest.
A longer term means you will have more disposable income to enjoy. But it also means the lender hangs on to whatever asset you gave as collateral longer, in the case of a secured loan. This is why it’s a great idea to reduce the principal amount as much as possible if you get your hands on extra cash.
Information is Power
It’s important to arm yourself with knowledge before you install that mobile lending app or fill out that loan application form. First of all, know your needs well enough to be sure that you really need a loan. If you determine that you do, find out about the various types of loans at your disposal and what the fine print says.