Getting a personal loan is one of the ways that you can get one-time funding for your big-time expenses. This type of loan is usually unsecured, so there is no need for you to set up collateral with your assets.
However, getting a personal loan requires that you have a good credit score. And getting a good credit score means that you should avoid making financial mistakes that can damage your credit score.
Getting a Personal Loan
A personal loan is a type of installment loan that offers cash in a short period, which can be used for different reasons such as the purchase of big-ticket items, payment for emergency expenses, education, or for consolidating your loans.
Personal loans do not require collateral, and that’s why it’s considered an unsecured loan. This means that you do not have to set up your assets, such as a home, car, or business equipment to secure payment for your personal loan. All you have to show is your credit score. If you have a good credit score, then your application will be approved.
The best personal loan deals have fixed interest rates and fixed monthly rates, which makes it easier and simpler for you to budget your monthly expenses. You can get personal loans from banks, lenders, or you can get personal loans online. Choose the best lenders with the best deals and payment offers.
Steps in getting a personal loan
- You can get cash loans by first checking your credit score. Having a good credit score gives you a better chance of qualifying for a personal loan. In general, scores that are above 720 are Excellent, 690-719 is Good Credit, 630-689 is Average Credit, and below 629 is Bad Credit.
- Next is to compare rates and fees among credit lenders. Knowing your credit score will help you get an idea of how much interest and monthly payment amount you might have for your personal loan.
- Compare rates among lenders. Shop around for banks, credit unions, or online lenders. Take note that not all free applications and processing mean that the deal is good. They may have no processing fees, but the interest rate could be higher.
- Next is to read the terms and conditions that the loan offers. Check for the prepayment penalties since most lenders will not charge an extra fee if you pay off the loan early.
There should be no surprise fees for you. The total amount of your loan, including the original charges, should be disclosed and explained to you. You should also figure out the Annual Percentage Rate.
- Once your application is approved, you should be prepared to pay the loan on time. The lender will run a hard check on your credit history, which will affect your credit score, though not significantly. Upon approval, you will receive the funds a day until a week after such approval.
Financial mistakes to avoid
As mentioned above, a personal loan application will most likely be approved if you have a good credit score. And to avoid bad credit, you should avoid the following financial mistakes:
1. Being negligent in making payments
This mistake is the most common financial mistake debtors do that affect their credit score. People do not realize that debt repayment is 35% of where your credit score depends. Financial experts recommend that you pay your debts religiously and timely.
Having one missed payment will not hurt your credit score significantly, making it a habit will. Creditors enjoy delayed payments because it means that more money will come in because of late fees. But it is bad for you because your credit score will get hurt by your late payments.
2. Not analyzing cash flow
Business owners usually make this mistake. They invest in many things for their business but do not know how to manage the cash flow their business is making.
Business owners should be knowledgeable about the flow of money. They should know the expenses versus the profit they are making. They should have effective control of the outflow and inflow of the money to the business.
3. Applying for multiple credits at a short period
This mistake also greatly affects your credit score. Handing out multiple applications for one credit line is no problem. But if you are planning on making a car loan application this month and a mortgage loan application next month, then your credit score will be affected.
4. Excessive spending
Every dollar counts. Every cup of coffee that you order from Starbucks is a few dollars deducted from your monthly budget. If you’re living paycheck to paycheck, then be wary of the things you spend your money on. You might consider getting other sources of income. If you are facing a financial hardship now, you should avoid making this mistake.
Taking out a personal loan is a form of help in relieving you from your previous debts, in making big purchases, or paying emergency expenses. However, taking out a personal loan requires a good credit score. To avoid having a bad credit score, keep in mind the financial mistakes mentioned above.