A personal loan can be very helpful in a difficult situation or to fund a specific venture or financial need. You can apply for a personal loan from a bank or credit union. They will analyse your eligibility and award you a loan for a specific amount based on that. A personal loan is a fixed amount of money that has to be paid back in installments of a specific amount by a specific date.
Before you apply for a personal loan, you should do some research and understand your own financial position and situation. Have a look at our advice for applying and also for paying back your loan.
Applying for a Personal Loan
Step 1: Understand Your Financial Needs and Ability
Before you decide to apply for a personal loan, study your budget, credit, and financial needs. When you have a loan to pay off, you must pay a minimum amount every month and you should figure out what amount you will be able to pay. This will determine the size of the loan that you apply for. The lender will also look closely at your finances when deciding whether they will award you the loan, so it is a good idea to know what they will see.
Know how big a loan you need for your project or needs. Also, find out your credit score as this will also influence your eligibility for a loan. If you have a good credit score, you will likely get better rates and will be awarded a loan easier than with a low credit score.
Step 2: Compare Different Options
There are different types of personal loans available. You should do research and find out what is available from which lender and decide which sounds the best to you. Different types of loans have different interest rates and different repayment requirements. Once you know what the different types are and what you will be able to afford, you can start the application process.
Step 3: Decide on Collateral or a Co-Signer
If you know that you may have trouble getting a loan simply based on your credit score and financial situation, consider putting up collateral or getting someone to co-sign the loan with you. This gives the bank or credit union a safety net should you be unable to make your repayments.
Step 4: Apply for the Loan
Applying for a loan will likely require several supporting documents like proof of identity, financial statements, etc. Make sure that you provide the lender with all the necessary documentation when you submit your application form. Be honest on your application. You can apply online or in person at most banks or credit unions. An –in-person application may give you answers faster than an online one. You will also have a loan expert to help you should you have any questions or uncertainties.
It is important that you ask questions if you don’t understand something about the loan application. You don’t want to just sign something that you don’t fully understand. Once you get approved for a personal loan it is time to start thinking about paying off and how to best do that. So here is our advice on that.
Paying Off Your Personal Loan
Step 1: Analyse Your Debt Situation
If you have more than one loan that must be paid off, assess your situation. You must pay your minimum instalment every month to keep your credit record clean and get you out of debt. The best way to ensure that you can pay everything is to know your finances and drawing up a budget accordingly.
Step 2: Reduce Expenses Where You Can
When you need to pay off a loan, you will likely have to cut on some other expenses to make the monthly payments. If you look closely at your spending habits you will find places where you can cut down and save money to put towards paying off your loan. This will help you in the long run.
Step 3: Sell Unused or Unwanted Things
When you need extra cash the first place to start is cleaning out things you no longer use or need. Clothes, electronics, exercise equipment, tools, etc. can all be sold online or at a yard sale to source some extra money. All the proceeds from these sales can go towards a bulk payment towards your personal loan.
Step 4: Pay More than the Required Minimum Amount
Try to round up your monthly payment and pay more than the minimum requirements. This will help you pay off your loan faster without making too big a dent in your monthly income. When you have a little extra from tax payouts, an inheritance, or other cash influx, pay some of that towards your loan as well. Big instalments bring down your overall balance and also shorten the period of time for paying it back.
Step 5: Get an Extra Income
People are getting very creative when they need money. You can get a part-time job, start a small service business from home, or do online work in your free time. There are many opportunities to generate some extra income if you’re willing to put in the work.
Step 6: Stick to Your Payments
Don’t skip payments. You will pay off your loan faster if you pay promptly every month. Try to avoid offers where you have a few months to wait before you need to start paying back. The sooner you pay it off the better.
Paying off a personal loan is a long-term commitment that should not be taken lightly. Sometimes it is the only option to fund a project or deal with an emergency situation. The best way to ensure that you know what you’re getting into and what you are able to pay is to do your homework, do research, and ask a lot of questions.