Personal loans are considered a great way for the purpose of solving cash flow problems. They can help the borrower to consolidate borrower’s debt, pay bills or help him out of an unexpected financial bind. The borrower can even use a personal loan in order to fund a new business venture. Personal loans are however considered great for many purposes as long as he does not use the money for frivolous things which he really cannot afford. Additionally, any time he takes on new debt, he should understand what he is getting into. Here are some important things borrower should know that would help the borrower to find a great deal on a personal loan.
Know your FICO Scores
A large part of what determines whether or not the borrower is or not approved for a loan and how high the interest rate depends on his credit report. A lender would typically pull credit reports from either Experian, Equifax, and TransUnion and then compare his credit score from all three.
Check Your Reports
While borrower is looking at his FICO scores, he checks his credit report for errors. All too often the people end up with lower scores than they should because of the errors on their credit report. If he can find and then correct these errors before he applies for a loan, then he would greatly improve his chances of getting favorable loan terms. It can take up to 30 days for the bureaus in order to resolve these errors.
Know the Fees
Almost all the personal loans have fees besides the principle and interest. The borrower should examine all his loan offers carefully and should look for “hidden” fees. Sometimes a lender may thus charge a lower interest rate, but charges higher fees in order to make up the difference. In these cases, he may want to make sure that he knows the total cost of the loan so that he can compare before opting for it and to choose wisely.
Figure Out What You Can Afford
The longer the borrower has a loan out, the more interest he pays. Before borrower even applies for a loan, he should know how much of a monthly payment he can reasonably afford. Once he has determined the monthly amount, he should try to get a loan agreement that allows him to pay back the loan as fast as he can without going over his budget.
Lenders lose interest if the borrower repays the loan early. Some lenders would include penalty fees for paying off the loan early.
Type of Interest Rate
There are two types of interest rates, which are variable and fixed. Fixed interest rates thus tend to be higher, by comparison, when he stake the loan out, but the monthly loan payment would always remain the same. Variable interest rates may thus below when borrowers take out the loan, but as the interest rates change so does his loan payments. On the surface, a variable interest rate may also seem attractive, but a fixed interest rate is the safest bet.
Unsecured vs. Secured Personal Loans
Unsecured personal loans tend to come with a higher interest rate because the lender is thus taking a bigger risk. If the borrower has any assets that he can use as collateral to secure the loan, he would most likely get a better interest rate.
Have Your Documents Ready
A startling number of loans are rejected every day simply because the applicant did not provide all the financial documentation which were required. Even worse, the loan underwriter may also charge borrower a higher interest rate because he or she did not know the complete financial picture. He must Be sure in order to gather important paperwork like tax forms, checking account statements, deeds, title and everything else that the lender requires.