Personal loan shoppers – Most of us become one at some point in time or another, but what should we look out for when doing so?
By: Hitesh Khan/
Personal loans can be a godsend when you face a huge medical bill, an unexpected repair bill, or another large expense. But you might be wondering if a personal loan is even possible if you have had the misfortune of having bad credit.
But personal loan shoppers must ask yourselves 5 important questions:
- What is the annual percentage rate (APR)? Looking at the APR can help you size up different loan packages that may be quoted. The APR is the true cost of borrowing money and can include fees and other costs beyond interest charges. It’s important to understand what types of costs can factor into the APR.
- What types of fees are involved? You may have to pay fees for the application, credit check, loan origination or other charges. Make sure you get all this information up front when personal loan shopping and comparing loan packages in order to make an informed decision about borrowing money.
- Is there a penalty for paying a personal loan off early? This is a particularly important question if you plan to use a loan to consolidate debt. Paying off a loan early can free up more of your income, but get all the facts about whether you will pay a penalty so you can factor that into a debt reduction strategy.
- How does your credit score affect loan quotes? Borrowers rarely receive the low interest rates quoted in ads unless they have excellent credit. Make sure you are getting the correct information that applies to your financial situation when you are personal loan shopping and before deciding to go through with a loan.
- What type of customer service does a lender offer? Are you applying for an online loan where you never meet a representative of the lender face-to-face? Do you plan to set up meetings at different lenders so you can have a more personal interaction? If you are already a customer of a bank or a member of a credit cooperative over the years, you may have built up some kind of relationship with employees, which might help when applying for a loan. Make sure you choose a lender that is compatible with your wants and needs.
Personal loan shoppers must take time to evaluate different lenders and loan packages.
This will help you make the best decision about borrowing money. If several lenders refuse to loan you money or offer very high interest rates, you may need to put off borrowing money until you clean up your credit.
- Work with the lender. You may wish to make payment arrangements with the lender, such as offering to repay the principal amount of the loan.
- Cancel GIRO agreements. You can notify your bank that you wish to cancel any GIRO that lets the payday lender debit your bank account. Notify your bank within four days prior to the deduction date and also notify the lender in writing that you have revoked their authorisation to withdraw funds from your bank account.
- Close the account. If the lender continues to try to draw funds from your account you may have to ask the bank for a permanent closing of the account. (But be sure to open a new account at a different bank before you close the old account.
- Stop debt collectors. You can ask that efforts by the payday lender or a debt collector to collect on the loan stop. If the lender or collection agency harasses you can take a court order against them under the Protection from Harassment Act.
- Look elsewhere. Alternatives to payday loans include small savings accounts; salary advances from your employer; working out an extended payment plan with your creditor; loans from friends, relatives, and social service agencies. Also, some credit cooperatives may offer low interest, short-term loans with quick approval that are a much better option than payday loans. Other options that are more expensive than a credit cooperative loan but better than a payday loan are a credit card advance.
For personal loan shoppers, here are three ways to stay on the affordable side of personal loans:
1. Good Credit Score
Borrowers with a good credit score are at a great advantage in obtaining affordable personal loans. Borrowers with over good credit who need a personal loan for a good reason are a no-brainer for a wide range of lenders, from traditional banks to finance co-operatives and other non-bank lenders like licensed moneylenders. Unsecured personal loans repayments are often done through a personal bank account; if ten other lenders have claims to that bank account, an affordable unsecured personal loan is not happening.
2. Steady Job
The other main way to get an affordable personal loan is to hold down a steady job. Also, to be able to verify that this job has been steady over some time. If a borrower can look at bank statements and see that salary going in every month, approving a personal loan makes a lot of sense.
3. Easy File
Personal loan shoppers who are applying for a personal loan, should not just throw out numbers on the application and hope for the best. Instead, be prepared and use accurate information.