5 Things to Consider Before Getting a Personal Loan

[Aug 24, 2009.]

 

Who doesn't need more money these days? Many Americans are struggling to keep up with their bills during this tough economy. In some situations, a small personal loan could help some folks keep a roof over their head and their utilities on. Here are five things to think about before getting a personal loan.

—Only people with the best credit scores will qualify for low interest loans. But having a good credit score is no guarantee a borrower will be approved for a loan. Lenders are scrutinizing loan applicants more than ever these days. Not only do they want to see high credit scores, but they want to see low debt-to-income ratios and a stable history of paying bills on time. Although there are tons of ads on the Internet claiming people can get approved for personal loans with bad credit, the reality is that many lenders are shunning those applicants.

—Personal loans don't require collateral, which is why lenders charge higher interest rates for them. Those unsecured personal loans are considered to be more risky for lenders, especially when borrowers have bad credit. Some people who have a tough time getting an unsecured personal loan may find success by putting up some type of collateral on a secured loan. It's important to compare different quotes for personal loans. Not all lenders are the same so get quotes from at least three different banks. For options on personal loans in your area go here. When getting quotes it's important to ask about the annual percentage rate (APR) and any fees for late payments or paying off a loan early.

—Interest on an unsecured personal loan is not tax deductible. So anyone looking for a deduction may be better off getting a home equity loan or home equity line of credit (HELOC). Borrowers who want to be sure that interest on a home equity loan is tax deductible should consult with a financial advisor.

—Unsecured loans usually have higher interest than secured loans, but they still beat most credit cards. Many credit card issuers also hiked interest rates recently in response to new credit card reforms that began to take effect last week.

—A personal loan is only a temporary fix. Borrowers still need to put together a debt reduction strategy if they have a lot of debt. They also need to find ways to boost their income or even find a job if they've been laid off.

A personal loan can be a lifeline for some people who are in serious financial trouble. But no one should borrow money without investigating all their options first.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.