Although there are plenty of reasons for taking out a personal loan, going to a vacation is definitely not one of them. Personal loans can be taken out for meeting the mid-month financial contingencies, to pay off one or two student loan installments, to pay off a credit card balance, to pay off few tuition costs or to initiate a home improvement project. Whichever may be your reason for taking out a personal loan, are you sure you know the ins and outs of taking out a loan?
A personal loan is usually an unsecured loan which is not given on the basis of any collateral. It is not based on your credit score always but on the monthly income that you make in a month. Personal loans have got both pros and cons as compared to secured loans and hence you need to know both before applying for your loans in Mississippi. Here are few things that you should know about taking out personal loans.
#1: The interest rate can be higher than your predictions
Whenever you hear about interest rates, it often means a 30 year fixed rate mortgage, which has been at 4% for a long time. However the interest rate of a personal loan is usually twice the rate that you pay for a secured loan. The only reason behind this is that they don’t have any collateral behind the loan and hence the lender will try to charge you more to reduce his risk of non-payment of dues. Hence, the interest rate can be higher than what you can expect.
#2: Credit score is often important for few loans
With no collateral, the lender has to prove his creditworthiness but with loans like the online payday loans, the lenders don’t check your credit score as all they check is your income. Nevertheless, for all other personal loans, the lender will check your credit score and he will also decide the interest rate on the basis of your score. The higher the score, the lower will be the interest rate.
#3: A personal loan can never be a long-term solution
While any typical mortgage can be paid off since several decades, personal loan terms can be limited to maximum 7 years. You shouldn’t ever borrow for a longer time period as the interest rates that you pay will be much more than what you owe. In case you’re trying to borrow a big amount of money, the payments can be too high for you.
#4: Banks are not always the sole option
As non-profit organizations, credit unions also offer low fees and interest rates than the banks even when you take out similar loan products. You can also seek help of the marketplace lenders who also offer you lower rates.
Therefore, whenever you think of taking out loans, whether secured or unsecured, you should first check your loan affordability, your ability to repay the loan on time and the impact of the loan on your credit score.