7 Things to Consider About Personal Loans

[Jan 23, 2010.]

 

Obtaining a loan is one way to get through tough times. Getting a personal loan, however, may not be the best solution to your financial problems. If you are thinking of getting a loan, consider the following before deciding on an option.

1.  Do you have enough income to pay back a loan? Borrowing money may seem like a logical way to get through tough financial times, but the situation can only get worse if there isn't enough regular income to make the monthly payments.

2.  Do you have good enough credit to qualify for a personal loan? Many lenders have really pulled back on lending money. Even people with good credit have faced tougher scrutiny. Borrowers should expect to have a tough time qualifying for a bank loan unless they have credit scores in the 700s.

3.  Is there any way to cut expenses to avoid borrowing money? Many people fail to scrutinize their monthly expenses to find more money. Before filling out a loan application, it makes sense to really go through your current bills and other expenses and cut out anything that is unnecessary.

4.  Is there a way to boost monthly income? Many people would be better off taking a second job or starting a part-time home-based business to supplement their income instead of getting personal loans. Secondary income doesn't involve interest payments like getting a loan.

5.  Use a contract when borrowing money from relatives or friends. While a buddy may offer to loan money with a verbal agreement, it's best to write out a contract that describes the terms of a loan. The contract should Include the names of both parties, the amount borrowed, any interest, amount of regular payments, and the date the money is due to be repaid.

6.  Bad credit loans are tough to get despite all the ads out there saying otherwise. Personal loans for people with bad credit were easy to get when the economy was booming, but are nonexistent now at many lenders. If you do manage to get a personal loan with bad credit, you can expect to pay extremely high interest rates in the teens.

7.  If you are experiencing money troubles, you may need credit counseling, not a personal loan. Getting a loan won't solve poor financial habits. A credit counselor can help pinpoint what's really contributing to serious financial issues and put together a plan for managing money better.

There are situations where personal loans can be helpful, and you can shop around and compare rates for loans here. However, for some, it makes more sense to search for alternatives to borrowing money.

 

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.