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7 things to remember about personal loans

[Nov 19, 2010.]

 

Anytime you borrow money it's important to determine if you are getting the loan for the right reasons. Use the following checklist as you shop around and compare personal loan deals.

  1. Unsecured personal loans have higher interest rates than loans that are secured by some type of collateral. The lower your credit score the higher the rate of interest you will be quoted by different lenders.
  2. Compare apples to apples when shopping for a personal loan. Borrowing money involves more than interest rates. Find out what kind of fees and penalties are involved before committing to getting a loan.
  3. Do you have enough income to pay back a personal loan? It's important to do a thorough analysis of your finances before taking on new debt. If you're already struggling with payments for a mortgage, student loans, auto loan, and credit cards, a personal loan can pull you deeper into debt -- if you can qualify for one.
  4. You can get a payday loan quickly, but you will pay dearly for the convenience. Payday loans have exorbitant rates of interest and it is easy to get trapped in a cycle of debt if you can't repay loans when they are due.
  5. Debt loans can allow you to consolidate bills. Just make sure that if you pay off creditors with a debt loan, you don't go out and reuse credit lines that have been paid off.
  6. You must have a plan for using money from a personal loan. It just doesn't make sense to borrow money without knowing how it will be spent. If you can't come up with a specific reason for getting a loan, then you don't need t to borrow money.
  7. If you can't get a loan without a co-signer, then you probably can't afford to repay it. People are only told to get co-signers if they have bad credit or no credit history. A personal loan won't change the issues that contributed to your bad credit, so if you need help with poor money skills, look for a trustworthy credit counselor to work with you.

Getting approved for a loan

Not everyone should apply for a personal loan, but there are times when borrowing money might help with a financial emergency. You may be a good candidate for a personal loan if you have a decent credit score and do not have too much debt. Having a stable income and a steady track record of paying bills on time also can work in your favor.

 

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.

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