Tips we should know about personal loans

Easily we can identify several reasons to borrow money. Most of us are comfortable taking out loans for homes, cars and education because these are expectations for us and they help us further build our credit while we finance our basic needs. Personal loans are different type of loan, and unlike home and car loans, a personal loan is not guaranteed by a collateral asset such as the home or car. A personal loan can be obtained through a bank, credit union or an online lender, which is a newer option gaining in popularity. How and when to look for a personal loan can be a matter of necessity or smart financing when we have general personal debt. Shopping around and knowing what to look for in a personal loan is important to achieving financial success.

Sources of personal loans

Banks and credit unions offer their customers and members personal loans based on their financial relationship with the borrower. If the lender and borrower agree, a personal loan may be secured by collateral, such as a vehicle or land title. In most cases, a personal loan is based on the lending bank or credit union’s lending decision based on our income and credit rating. Some credit unions offer quick cash loans for up to several hundred dollars or more, which are repaid from direct monthly withdrawals from the borrower’s account over a short term, often within one year.

The new trend in personal borrowing involves online and app-based moneylenders. An online lender with money to lend may offer a good rate on a personal loan where the online lender does not have the overhead of a brick and mortar bank or credit union. Online applications and processing make it easy for us to apply for personal loans from our home or office. With so much commerce happening on device applications, personal loan apps are another option. Some apps we use to receive credit and debit card payments, will offer personal or business loans to their customers, based on a known income average. These app-based loans can easily be repaid monthly in a fixed amount or as a percentage of incoming funds until the loan is repaid. Square Capital is an example of a income app-based lender.

Determining whether a personal loan makes good financial since

The fees and interest payments on credit cards can be significant if we carry a balance and do not make more than the minimum monthly payment. The balances never seem to come down. A personal loan at a lower interest rate can save us significant amounts of money if we use the proceeds of the personal loan to pay off the credit cards. Of course, if we run those credit cards back up we are headed right back to a monthly cash flow problem. If credit cards are only used for actual emergencies or small monthly fixed bills, such utilities, they are good for our finances.

An unexpected major expense such as an uninsured medical expense or major car repair is a good reason to look for a personal loan. Using the car repair example, a $1500 personal loan to repair a transmission, will cost us significantly less than trading off the devalued vehicle on a newer one, especially if we owe more than the value of the car. Too often people get into terrible deals on cars because they do not have the access to cash or credit to pay for major car repairs.

Shopping for the best personal loan to meet our needs

We should always perform our own investigative online research about any lender we from whom we might borrow money. There are many scams and consumer fraud perpetrators in commerce, especially online where their identities might be hidden. Before you give out personal information on the Internet, in a loan application, make sure you are not working with a fraud or identity thief.  Of course, be aware of scammers offering amazing deals. If it sounds too good to be true, everyone would be borrowing money from these folks.

Another good idea is to find out how and when the lender reports positive payment histories to the credit agencies. Any lender who makes interest and repayment decisions based on our credit, should update the agencies when we make timely personal loan payments, to boost our credit scores. We should make sure we understand the amount and duration of our payments. If we can make fewer and somewhat larger payments, we can save money on interest, with the example of the 12-month quick cash loan versus a 36-month personal loan, where we are likely to pay more money in total interest.

Joseph Wrobel, Ltd., works with clients on consumer issues including bankruptcy and they can offer additional suggestions about personal loan options as the need may arise.

Joseph Wrobel, Ltd. helps people get control of their finances and a fresh start at financial freedom. The firm’s website contains informative videos about financial issues as well as bankruptcy protection for families who want a fresh start.

Don’t forget to keep up with us on Facebook, Twitter, LinkedIn and Avvo, where you can read client and peer reviews!

Image source: Aero Federal Credit Union, personal loan