Firstly, a little recap on loan basics. What can you use a personal loan for?
Essentially any cash needs including credit card payoff, debt consolidation, education fees, medical expenses, home improvements, or any other pressing needs you need to fulfill quickly. There are essentially two types of personal loans, secured and unsecured.
Secured loans often offer lower interest rates. The reason being that you need to provide the lender with collateral. This lowers the risk the lender is undertaking in approving the loan. Tread carefully before applying for a secured loan as you can forfeit an asset if you are to default on your payment. The financial institution has legal authority to engage in any such activity to cover your debt. If you are considering a new car or a large asset, a secured loan may be for you as you can enjoy a lower interest rate on the bigger loan amount.
If you don’t like the thought of putting an asset to risk, an unsecured loan doesn’t require you to offer security but as such, you’re considered as a higher risk for the lender and therefore you will need to make monthly repayments at a higher interest rate. Note that if this is your first loan ever, you might need to provide a guarantor (a person that acts as a guarantee) on your application that ensures that your repayments will be met.
“A personal loan can provide a way of achieving what you need in the present, by enabling you to pay it off in the near future over a predetermined timeframe.”
There are times in life when regardless of your best efforts, you fall short of the funds you need to achieve what you desire or to fulfill your most essential needs.
From a wise financial perspective, when is it okay for you to get a personal loan then? If you have a loan amount in mind and you have identified what type of personal loan you’d like, then it is time to get serious and start comparing. First, let’s make sure you’ve got the right reasons in mind for getting a loan. Go ahead and answer the following questions (truthfully):
- Do I absolutely need to apply for a loan?
- Is there no other way of financing the expense?
- How do I rate my ability to stay committed?
- Do I have an adequate cash flow to make the repayments?
- How fast can I run? Jokes.
If you can truthfully answer these questions, go ahead with the loan application. Always note that it isn’t necessarily financially wise to use a loan for holiday or other luxury expenses, but mostly for the absolute necessary needs. If you are uncertain as how to go about applying for such a loan or which lender is safe and secure, Fincheck is there to keep you up to date with the latest costs and fees associated with each lender.