Personal loans need you to be focused and diligent when it comes to making repayments and to figuring out why you are taking out personal loans. Personal loans are loans that you can borrow for personal reasons that can be anything that you want.
1 – Look for the amount that you need
On the whole, personal loans tend to be bigger and you can get amounts from anything from £1,000 upwards. Personal loans are meant to be used for whatever you want or what you think you need the loan for. Is the amount you need truly the amount that you should be borrowing? Always aim for smaller amounts at first and then once you have repaid, you can borrow more money later.
2 – Are repayment holidays available?
Some personal loan lenders will allow you to have a repayment holiday. A repayment holiday is when you have a certain amount of time off from making any repayments to your loan. Sometimes these are allowed at the beginning of taking out your loan. They are meant to make your life easier because you will not be stressing about making payments straight away while you are still trying to figure out how to make your loan work for you. Repayment holidays need to be managed properly by you so that you don’t fall behind on making any of your repayments. For example, don’t rest just because you have your repayment holiday. Start planning your finances ahead of time so when it comes to make your first payment, you can do it without any financial problems.
3 – Lump sum repayments may be penalised
It depends who your lender is but you may be penalised if you try and pay your lump sum now. You need to figure out if this is something you want to do. Some people do not like repaying lump sums but others prefer doing this so that they can tick the debt off their list. Ultimately, a lump sum is something that you should know can be done before you agree to take on the loan.
4 – Late payment fees can be charged
Sometimes, late payment fees can be levied on you if you are not careful. This happens when you are late to make a payment on your loan. If you think that you cannot make your loan repayment on time, contact the lender. It’s always better to contact your lender first to let them know about the situation as opposed to ignoring what is happening. Late payment fees can often snowball into higher fees which can end up being even more stressful for you.
5 – You will not lose your home
Because personal loans are unsecured loans, you do not have to worry about losing out on your home because you do not need to secure your home on the loan itself. Unsecured loans are loans that do not have assets that are tied to them. You should always strive to make your repayments on time and you should not fall behind on your payments to avoid falling into debt.
6 – APR could be fixed or variable
Most borrowers know that the APR is the rate of interest that you will repay on top of your loan. Something that adds a distinct flavour to personal loans is the fact that the APR can be fixed or variable. A fixed APR means that the rate does not change. The rate you see is the one that you will end up paying for the life of the loan. A variable APR rate can change at any given time. Sometimes, variable APR rates look cheaper at first but that is because they can end up being even more expensive in the long run.
7 – Repayments are normally monthly
By making repayments monthly, you can work in your personal loan repayments into your monthly budget. You will need to make edits to your budget in order to afford your loan. Always look for repayments that are monthly. Anything that is weekly or more than one month can hurt your finances because you will not be able to save money or you might forget that you need to make a loan repayment.
8 – Healthy credit ratings are important
Due to the size of some personal loans, it is really important to have a good credit rating. You can build a good credit profile by borrowing before and paying back your loans on time. It’s really important to have a history of credit if you are trying to borrow a big amount of cash such as more than £1,000.
9 – Know interest before you take out the loan
Due to advertising, it is easy to look at the amount that you can borrow such as £200 or £700. This is not the amount that you will be repaying. You should know the APR and you should also work out the APR that you will be paying on top of your loan. It is really important to look at fine print conditions in order to make personal loans work for you.
10 – Personal loans should be considered carefully
The fact that personal loans can be used for your personal use means that you should be using them as long as you have a concrete plan. Many people like to use them for DIY, renovating their homes. If you do this, you should have an ‘exit strategy’ such as selling your house or renting it out, so that you can get something back from the loan.
The growth of consumer loans has only made personal loans even more popular for consumers. More people are looking for personalisation in every area of their lives from budget planner smartphones apps to their personal finances. Personal loans allow you to use money the way you want and they help you to achieve your goals as long as you know how to manage them effectively. Always make personal loans work for you, not the other way round to receive their full benefits.