Financial disasters can come at your fast. No matter how hard you might prepare for the future, there are just some emergencies that will catch you without the cash that you need. While a personal loan can be a great way to deal with a short-term financial emergency, it can also be a double-edged sword. If you’re going to take out one of these loans, make sure that you follow the tips below to use it wisely.
Understand What a Personal Loan Is
Before you take out a personal loan, you’ll need to understand what the loan is meant to accomplish. These loans are generally small-to-moderate sized loans that are based on the borrower’s ability to pay rather than the borrower’s credit score. They are excellent for those who only need to borrow a bit and can pay it back or who are just looking to consolidate existing credit.
However, because they can have high interest rates (though usually not as high as credit cards), that can cause problems for those who over-borrow. You need to realize that you’re only borrowing money; you’re not being given money. Because of that, you will have to pay back more than you borrowed in order to use one of these loans wisely.
Read the Fine Print
Part of using these loans wisely is understanding exactly what you’re getting into. Look not only at the interest rates and monthly payments, but any fees that might be involved. Some lenders charge fees for paying off the loan early, for altering the loan, or for changing the payment dates. Other lenders might have programs in place to help you if you lose your job or have a major financial change. Knowing everything your lender has to offer is a great way to make sure that you are getting the most out of your loan.
Borrow the Minimum
If you are comfortable borrowing, make sure that you borrow the least amount of money possible. Like all loans, you’re going to have to pay interest on whatever you borrow so borrowing less is actually going to save you money. While many lenders will automatically show you the most that you can borrow, try to stick to the minimum amount so that you can pay off your loan faster and with fewer additional costs.
Never Skip a Payment
Finally, make sure that you’re going to be able to make your monthly payments. Most legitimate lenders are very good at letting you know exactly what you will need to pay, so don’t get into a situation that’s out of your fiscal means. If you do need to miss a payment, call the lender—many lenders have programs in place for just such circumstances. Some might even be able to help you work out a new schedule that will allow you to stay on track without hurting your credit.
A good personal loan can change your life for the better. If you understand that you’re borrowing money that must be paid back, these loans can do a great deal for you. Go into the process with your eyes open so that you know what to expect and you will definitely find one of these loans to be quite beneficial.