Most personal loans come in handy at difficult times

Most personal loans provide consumers with a variety of choices

By: Hitesh Khan/

When it comes to borrowing money, consumers have a variety of choices, ranging from credit cards to home equity loans. Personal loans are used for various purposes, such as meeting family emergencies, purchasing home furnishings or consolidating other debts. These loans are generally short-term.

Most personal loans range from $5000 to $30,000 with the borrower paying equal installments at regular intervals over a determined number of weeks, months or years.

Most personal loans will require you to consider the benefits and responsibilities of getting one. A personal loan:

• Obligates future income. You’ll be required to set aside a certain amount of future income for loan payments.
• Requires discipline. Borrowing wisely means not borrowing more than you can handle. Don’t let the thrill of buying or having a sum of cash obligate you to more than you can afford.
• Makes it possible to meet unexpected expenses. The ability to borrow and make affordable payments can be helpful if an emergency arises that requires extra money.
• Allows you to obtain products and services now and pay for them later. A loan can provide an opportunity to purchase bigger-ticket items and use them right away.

Most personal loan lender will require you to complete a credit application before they extend you one. The credit application may include: your name; NRIC/Passport number; date of birth; current and previous addresses and length of stay; current and previous employers and length of employment; occupation; sources of income; total gross monthly income; and financial information on existing credit accounts.

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Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.

Your credit history helps predict how creditworthy you are — how likely it is that you will repay a loan and make the payments when due. The creditor’s decision to loan you money is based upon what appears on your completed credit application and your credit report.

Most personal loans will also give you the option of applying for credit insurance. Its purpose is to repay the debt if the borrower dies or becomes disabled r unemployed. Credit insurance purchased in connection with a consumer installment loan is optional in most cases.

In deciding whether to get credit insurance, evaluate what would happen if death, disability or unemployment were to occur before the loan is repaid. The cost of credit insurance coverage must be disclosed in writing. You are entitled to receive a copy of the certificate of insurance from the creditor.

If you don’t individually meet the criteria for credit extension, most personal loan facilities may request for a guarantor or co-signor. A co-signer may also be needed if the borrower has: not applied for credit before.

Some reasons for requiring a guarantor includes:

• income level too low to qualify for the loan;
• seasonal or sporadic income;
• a weak credit history; or
• excessive financial obligations.

A co-signer assumes equal responsibility for the loan. The account history will be reflected on the co-signer’s credit history as well. You should exercise caution if asked to co-sign for someone else. Understand the terms and conditions before you co-sign and keep a copy of the loan contract. Creditors should advise co-signers about his or her potential liability if the other person fails to pay.

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Most personal loans creditors understand that circumstances such as unemployment or illness can make it very difficult to meet bill payments. If this happens to you, contact your creditor, explain your situation and work out a repayment schedule.

You also might be offered the option to “refinance” or “renew” your loan. Keep in mind that early or frequent renewals can significantly increase the overall cost of your loan. Each time you refinance, you pay additional fees and interest charges.

Refinancing should only be an option if it benefits you and fits into your spending plan. If your situation requires outside help, contact a nonprofit budget and credit counseling agency, often called a consumer credit counseling service. These agencies can work directly with consumers and their creditors to help resolve debt problems.

Remember to Shop, Shop, and Shop before getting personal loans. Always compare the costs of credit from different creditors. Shop for credit like you would shop for anything else.