Personal loans: 8 tips to get the best ones

That’s why we’re here: to guide you through the sea of banks, online loans, quick loans and others you might find. The next eight tips should be enough to get you on your way to the perfect loan. 

Personal loans, where do they live and how to get one?

If getting personal loans seems hard, that’s because it is. Or at least to get a loan at good interest rates. They have to actually be an advantage for you, your personal life or business. When looking for such a rare specimen, many people end up with debts. Sometimes, they’ll take years to pay and give more headaches than anything else. 

The key is to understand deeply what these loans are about before getting started. We’ll give you a hand in the tips below (keep reading, there’s a little extra at the end). 

personal loans, understand how to get one
The money writes with white chalk is on hand, draw concept.

1. Keep good credit (specially for who is on their first personal loans)

Before any personal loans it’s important to know your credit score. Any bank or financial institution will need this information when considering eligibility. In that case, what do they consider to set your score? 

  1. Debt payment on time: if you’re behind on payments do that now! After getting current it’s important to be mindful of any other debts that come up. A good tip for day-to-day bills is using automatic payments or set up reminders on your phone; 
  2. Credit limit: the best way to keep a good score is trying not to get close to being maxed out. Be careful not to put too many of your payments on a single credit card, for example; 
  3. Credit history: any loans count for your score, even old ones. A common mistake is to keep unused credit cards, forget about them and ending up in debt. 

With a decent history and score the chances of making a good deal are higher. But there’s a lot more to pay attention to with loans, as you’ll see ahead. 

2. Calculate installments carefully with a personal loan calculator

A personal loan calculator will be your best friend in this process. Even at low interest rates, some loan installments can make a huge difference on your liquid income at the end of the month. If EMI (monthly installments) over tenure amount to more than 10% of your earnings it could be a problem that’ll drain savings and keep you from achieving financial stability. 

So don’t forget to find out how much you’ll pay per month for the next few years. That is also something to consider when you decide the amount of money you wish to take out on a loan. Depending on the situation, it’s better to save up a little or wait on that new job opportunity you’ve been looking for before making any rash decisions. 

3. Explore loans and lenders before any decision

The number of providers, banks and financial institutions that offer loans has risen a lot over the years. Which means one will find many suitors as soon as he starts looking for such services. Don’t be swept away by impressive promises on the first try, when they aren’t outright false promises, they for sure aren’t the best on the market. 

With such a great number of providers, it’s reasonable to take your time and find out tenures, fees, interest rates and other details of as many as possible. After doing your research it’s time to sit down, compare them slowly and decide which is best for you. 

Think of this as buying a house or a car: such an important (and expensive) investment shouldn’t happen fast or without second thought with the first dealer you meet. 

4. Check your bank before online loans

Calm down, we know most banks don’t offer the best interest rates, especially when compared with online loans providers. However, if you have a long history with the same banks it’s worth a try. Many institutions consider client loyalty when they offer benefits, which means there’s a chance of getting a good deal. 

Another option is checking out nonprofit credit unions, which often offer lending programs at highly competitive rates. As long as you have a good credit history these options could be a good way to find what you’re looking for. 

5. Careful, personal loans may have high interest rates!

There’s a problem with personal loans: they’re a high risk investment for banks and other providers since there’s no guarantee or collateral. Even a good credit score can’t prevent nonpayment from the users, thus interest rates are often higher when compared with other financial services. 

That may be old news for anyone with even a small interest in economics, but there’s an important detail for those looking to lend any amount of money: even a small difference in interest rates can make a huge difference on EMI. 

Check interest rates carefully before closing the deal and remember: even a 0,05% difference can make or break your financial plans. 

6. When faced with good personal loans, check eligibility criteria

Good job, you found the best among all other personal loans available and think you’re ready to close the deal. Hold on a second before dismissing other proposals since the provider can also chose to work with your credit or not.

There are many eligibility criteria involved and what looks like a good business can simply be impossible for you right now. Income is one of the first things any financial provider will look at. After all, it’s important to know you can pay back what was agreed on in the time given. 

It’s a simple combination: income + credit score = a match with a good loan. Check with your bank or provider if there are any other criteria you should meet to get the best deal possible. 

7. Research additional charges for quick loans 

Anything that looks too good in theory can have a hidden problem and it happens with quick loans too. It’s common to have additional charges over time, which can include: 

  • Origination fee: it’s used by the lender to pay for administration and operational costs. It is usually paid upfront and can range from 1% to 5%, according to CNBC. The good news is not all lenders have this fee, so keep looking; 
  • Late fee: fail to make your payments and you’ll be faced with a surprise, a new fee to call your own. The policies for this one vary according to provider and it’s important to check on those before you sign any contracts; 
  • Early payoff penalty: paying off your loan before the expected tenure can be a problem. That happens because lenders plan to get full interest for the time agreed, if you finish paying early there might be a penalty to make up for that. 

8. Be mindful of long loan tenures

If you want to take a high loan you might be tempted to pay over a longer period. Perhaps it sounds like a great idea, but be aware that interest is always higher for long tenures, which means the price paid by the end of your loan will be more than if you chose to pay in shorter term. 

Whenever possible, shorten your tenures! That is ideal, not only because it lowers interest rates, but also the chance of fees that you might encounter along the way. Sometimes, a bank or provider might show an apparently irresistible offer to pay over the years, but you know better. Read the contract carefully and weight your options to make sure you’re doing what is best for your finances. 

Tips for after getting the best personal loans

Congratulations, you have your personal loans in order and are ready to make any dreams come true. Or you are on your way to closing a great deal, which could mean the start of a new business or life with your family. There are still some considerations you should make over the next few items to keep your finances in order. 

1. Only take personal loans if necessary

It’s easier than ever to get personal loans, especially if you have a good score. That doesn’t mean they should be an easy decision to make, on the contrary: only take them if there’s absolutely no other option. Remember this is a commitment that you’ll have to take for the next few years, failing to do so can have dire consequences. 

Interest rates for this sort of credit might be lower than your usual credit card, but they’re still high. Check out every financial option you have before settling for personal loans options. 

2. Maintain high credit scores after the loan

They’re still important for getting credit cards and negotiating with your bank! Don’t get sloppy after a loan and let your scores fall, after all, a good paying history might even help you get new future loans at better interest rates. 

3. Be wary of repayments 

So you missed the payment day, no big deal. Or so you might think! Timely repayments are the only way to stay away from unwanted fees that could make every loan a lot more expensive. And it also keeps your credit score healthy, guaranteeing you can get easier loans and credit in the future.

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