There are times in life when you want or need to spend more cash than you have on hand. You can borrow the money and pay it back a little at a time if you have reasonably good credit.
The most common way to borrow, if you don’t have a helpful relative, is to go to a financial institution. There are different types of personal loans available depending on what you plan to do with the money — just bear in mind that eventually you’ll have to pay it back with fees and interest.
WHEN A LOAN MAKES SENSE
You can take out a personal loan, for instance, to pay for a big project or consolidate debt. If you need a lump sum that you don’t plan to pay back within about a year, a personal loan could be the best answer. If you need funding relatively quickly, this could also be the right move. If your credit card interest rates are in the upper teens or higher, paying them off with a personal loan may work to your advantage. If you don’t have the time to save up money to meet your goals, borrowing might be the next logical step.
TYPES OF PERSONAL LOANS
Most personal loans are unsecured. That means you’re borrowing the money based on your creditworthiness alone, without putting up collateral such as a car or house. Unsecured loans present a higher risk for the lender, since it’s essentially relying on your financial reputation to guarantee repayment. So this option carries a higher interest rate than one secured by an auto or a home. If you don’t repay a loan backed by such an asset on time and according to the terms, the lender can take your collateral or foreclose on your property.
HOW TO GET A LOAN
Before you fill out a handful of online loan applications, check out the terms and interest rates to see what’s available, what’s affordable and what’s realistic. Understand that every time you apply for a loan, your credit score can take a hit, which may jeopardize your chances of getting the loan — or of paying a lower rate. Check available rates, including where you bank regularly. If you have a history with a lender, even just a checking account, it may be easier to qualify for a loan even if your credit isn’t great.
Before borrowing, it’s best to have a plan for how the money will be used and how you’ll pay it back. Taking out a personal loan can help consolidate debt, accomplish goals or even make a dream become a reality. For more tips on how to maximize your ability to get a personal loan, checkout TFCU's Downsizing Your Debt guide.