A personal loan is a popular financing option because of its versatility, allowing you to use it to cover various emergency expenses. However, before taking out this loan option, it is crucial to know the application process for a personal loan and how to decide when to get it.
Before you take out a personal loan, consult this list of things you must know when getting this loan option.
The Advantages of Personal Loans
Getting a loan can be costly, particularly those loan types with high interest rates. But many borrowers consider personal loans as more affordable than other loan options. They also prefer it because it is flexible, especially when you need money in emergencies. Read these advantages of getting personal loans.
- Installment Payments. One good thing about a personal loan is you can pay it in installment every month until you pay off the loan. This feature allows you to budget your money appropriately.
- Lower Interest Rates. Compared to credit cards, most personal loans have affordable interest rates. However, consider your credit score to get a lower-rate personal loan.
- Flexible Spending. The money you borrow can be spent on various expenses. This feature is the reason why borrowers apply for this loan option. If you want funds to cover car repair, home renovation, or medical expenses, a personal loan can help.
- Improve Your Credit Score. You can build or improve your credit rating if you make regular payments on a personal loan. If you use this loan type to consolidate your debts and you are consistently paying your monthly payments on time, it can benefit your credit history.
- Easier to manage. Unlike credit cards with different interest rates, personal loans has a fixed rate monthly payment which is easier to manage. If you qualify for a personal loan with lower interest rate than your credit card, you can use it to streamline your monthly payments and save money.
- Fast funding. Personal loans in general have fast approval making them useful in emergency situations. Some lenders can deposit the money into your account the next business day. If you need money fast, a personal loan is a good option for you.
Guide When Applying for Personal Loans
There are different sources from which you can get personal loans. You can apply for this loan from an online lender, a credit union, or traditional bank. Since online personal loans have an easier application process and faster approvals, many borrowers prefer to transact with an online lender when they need money.
Borrowers should learn more how the process of applying for a personal loan works and prepare all the necessary documents to make everything fast and smooth.
Prepare the Pertinent Documents
Show your valid ID and proof of your Canadian residency and your source of income to the lender. Be ready with all the required documents to ensure your application process is fast and smooth.
Ensure You Own a Checking Account
You must have a checking account to take out a personal loan. The lender will require your checking account number and routing number.
Understand the Loan Term and Monthly Payments
The lender will give you the terms of the loan before the application process is complete. Ensure you understand how to make the monthly payments, when the repayment begins, and how many months it lasts.
Typically, you must pay a personal loan a few weeks after you get approved by the lender. Make sure you have the financial means to pay the monthly payments.
Know the Interest Rate
It is a must that you consider the interest rate of a personal loan before applying for it. The interest determines how much you will pay in total. The more expensive the loan if it has a higher interest rate. A specific market may have a standard rate, but your interest rate will vary by lender or your credit score.
Talk to the lender about any extra fees that may affect the overall costs of your personal loan. Do not be surprised if your personal loan comes with origination, prepayment, or late payment fees because some lenders charge them on their personal loan products. Knowing you have to pay such fees can help you make a wise decision on a particular loan and how you must budget your monthly payments.
Secured vs. Unsecured Personal Loans
- Secured Personal Loans. There are personal loans that require the borrower to put collateral or security against the money he will borrow. The collateral should have similar value to the loan. Your car, pieces of jewelry, or any valuable property can serve as collateral.
- Unsecured Personal Loans. This type of personal loan does not require you to provide collateral. Instead, the lender will simply consider your capability to pay back the loan, such as your source of income or credit score. If you have stable monthly income and a high credit score, you will easily get approved for a personal loan.
If you find yourself in a financial situation where you need to borrow money to cover emergency expenses, consider taking out a personal loan. This loan type offers flexible spending, which means you can use the money you borrow for various purposes. Moreover, there are also lenders who can provide personal loans with reasonable and lower interest rates. This is a big win for you as a borrower.