If you’ve considered taking out a loan in the last few months, you’re not alone by any means. Reports from the financial sector show more than 84 million people in the United States alone have found themselves searching for ways to overcome financial difficulties. In fact, recent research shows an unexpected expense of only $400 could send the majority of Americans into a state of hardship.
With those figures in mind, a number of people are searching for ways to circumvent financial issues. Loans are more readily available now than they have been in the last several years, but not all are created equal. Before taking out a loan, understand the information provided by Loan Review HQ as well as the following points.
1) Never Borrow More than You Need
Lenders once extended their borrowing limits considerably. After the recession of more than a decade ago, they pulled back the reigns quite a bit. Once people started recovering from the economic downturn, though, those lenders decided to branch out a little more.
Although loans of $5,000 or more may be available to you regardless of financial status and credit history, it’s important to resist the temptation. If you’re looking for a $500 loan to cover an unexpected tooth extraction or radiator repairs for your vehicle, don’t take the extra funds simply because they’re being offered.
Only borrow as much as you need to cover the expenses on hand. Accepting more from lenders could lead to higher interest rates and greater financial difficulties in the long-term sense.
2) Credit History Matters
Some lenders rely heavily on borrowers’ credit scores to determine eligibility for a loan. Others lend money to those with even the lowest of FICO scores or figures provided by other agencies. Whether lenders look at credit scores or not, this number will eventually come into play.
If you’re going through a lender that factors credit scores into the equation, your status will be used in deciding whether you’re a qualified borrower, how much money you can borrow and the interest rate for the loan. Borrowing history may not bar you from loans designed specifically for those with bad credit, but those loans typically come with high interest rates. This means you’ll pay back more in the long run. Either way, your credit history matters.
4) Not All Loans Are the Same
Research the various types of loans available before deciding which one is right for your needs. If you’ve accrued a great deal of debt on several credit cards or have credit cards with extremely high interest rates, a consolidation loan may be in order. In the event unexpected medical expenses are the issue, a personal loan might be better suited to the situation.
Both payday and title loans provide smaller amounts of cash quickly, but they have certain requirements. They come with lofty fees and interest rates and need to be paid back rather quickly. Payday loans are usually expected to be paid in full within a couple weeks to a month. The same can be said for title loans.
Payday lenders typically look at potential borrowers’ income to ensure they’re able to pay back the loan in the specified timeframe. To be eligible for a title loan, the vehicle being borrowed against must have no other liens and must be worth enough in resell value to cover the amount of the loan.
5) Consider the Consequences
Each type of loan comes with its own consequences. Personal and debt consolidation loans may be the least dangerous options in terms of repercussions for not being able to pay them back, but they’re not exemptions to the rule. Failing to repay them according to the agreed-upon terms could damage your credit score and future borrowing potential. Legal action may also come into play, such as the lender attempting to garnish your wages.
Being unable to repay a title loan could result in losing your vehicle. Unless you have reliable backup transportation, this might render you unable to get to work to earn an income. Also keep in mind, any type of loan leads to monthly payments. This extra debt might affect your ability to meet basic monthly expenses.
6) Think about Why You’re Borrowing Money
Some financial needs warrant taking out a loan. They’re unavoidable issues you can’t always plan for. Valid reasons for borrowing money might include:
- Unexpected medical expenses
- Funeral costs
- Vehicle repairs
- Lowering debt via consolidation
- Back-to-School Needs
- Higher Education
If you’re borrowing for a vacation, shopping spree or concert tickets, think twice before you leap into a loan. For expenses that aren’t absolute necessities, the better option might be saving a little money each month to cover them. Don’t go into debt unnecessarily.
7) Read the Fine Print
When borrowing money, whether it’s $50 or $5,000, you’re not only paying back the amount borrowed. Certain extra fees, like finance charges, apply. These vary by lender, and not all of them are up front about their additional fees.
Also consider interest rates because these play a major role in how much you’ll be paying back. At present, standard interest rates on personal loans range from 5 to 35 percent but could be even higher. For payday loans, interest could surge as high as 700 percent.
8) Research Lenders Thoroughly
Just like numerous types of loans are available, several lenders are at your disposal. Each one caters to specific borrowing needs and offers its own set of loan options. At the same time, some have more extensive networks than others.
Researching lenders rather than going with the first one you find that fits your needs could certainly work out in your favor. You might find much lower interest rates, better terms, less restrictive eligibility requirements and a long list of other benefits.
Very few people go through life without having to borrow money at some point. Considering soaring prices on even basic necessities, having trouble making ends meet on occasion is inevitable. Before signing on the dotted line, though, be sure to look at the bigger picture. Doing so is sure to save you a great deal of hassle and money in the long run.