Three Questions to Ask Before Taking Out an Unsecured Personal Loan

[Apr 18, 2010.]

 

There is a time and place for everything, and unsecured personal loans are no exception. Even a high interest bad credit personal loan can be a good idea in some situations. For example, an individual who needs a car repair in order to use that car to go to work or else they will not have work anymore.

That being said, it is essential that anyone who cares about their finances--and these days, who doesn't?--seriously consider the pros and cons before taking out an unsecured personal loan.

Here are three questions to ask:

1. Is the Reason for the Personal Loan Sufficient to Be Worth the Expense?

This is the first and most important question that you should ask yourself when making a personal loan decision. There are some good reasons to take out an unsecured personal loan; paying off other unsecured debt as part of a debt consolidation plan is a one good reason to get a personal loan.

Other reasons to apply for an unsecured personal loan, however, are severely faulty and superficial. For instance, borrowing a down payment for a new car because the old car got repossessed.

Unsecured personal loans, especially bad credit personal loans, are not a cheap form of credit. Borrowers who are going to be faced with the cost must first consider whether the cause is worthy.

2. How Is This Loan Going to Be Repaid?

Hoping to win the lottery is not a viable strategy for personal loan repayment. Unfortunately, neither are a lot of other less ridiculous plans that people sometimes make when they're stressed out about money.

When looking at the personal loan option, be specific and concrete about exact repayment plans. Is $200 per month really possible or would $150 per month be more manageable? Do you need to get a second job? Is it time to sell some stuff on eBay or maybe even sell the car?

Nothing should be out of the question when asking this question.

3. How Much Is This Personal Loan Going to Cost?

Personal loans range from 7 percent for good credit borrowers to 300 percent or higher for bad credit borrowers. Both good credit and bad credit borrowers should know ahead of time how much this loan is projected to cost in dollar figures.

It's kind of like they do at the car dealership: "What do you want your payment to be?"

And then the salespeople and finance department can massage the numbers so that the payment hits that number--but in reality the car may end up costing you $10,000 more. Look at total cost before taking out a personal loan, not just monthly payment.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.