Read this before applying for a personal loan
Personal loans are often used to consolidate high-interest debt or to finance large one-off purchases. But they can also be useful for managing day-to-day expenses in an emergency when your income is down or you don’t have savings to rely on. But there are a few things you should know before applying for a personal loan to make sure it’s the right decision.
Is Getting A Personal Loan During A Financial Crisis A Good Idea?
There are advantages and disadvantages associated with get a personal loan during a financial emergency.
On the pro side, it can be cheaper to get a personal loan than to charge expenses on a credit card. If you can lock in a low fixed interest rate on a personal loan, it may be preferable to the higher variable interest rate that credit cards typically charge.
You can also borrow more money with a personal loan compared to a credit card. And an unsecured personal loan doesn’t require collateral or has the potential to trap you in an expensive cycle of debt, like a car title loan or payday loan might.
On the other hand, it is important to take into account the current credit environment.
Dave Meltzer, CEO of Maryland East Insurance Group said obtaining a personal loan could be more difficult as lenders tightened restrictions. He also noted that it is important to consider your ability to repay a personal loan if you are going through a financial crisis because you have been made redundant or have lost your job altogether.
Credible Can Help Compare Personal Loan Companies (and hopefully you will get the lowest rates for what you are looking for).
A loan could help cover your expenses for a few months, but if you can’t make the payments, your financial situation could be worse than before you borrowed. Pass the numbers through a personal loan calculator before you apply can help you estimate your monthly payments.
Can I Get a Personal Loan With Bad Credit?
Banks and online lenders are reviewing your credit rating and credit history when reviewing your loan application. If you have bad credit, getting a personal loan during a financial crisis might be more difficult.
If you are able to get approved for a loan, you may have to pay a much higher interest rate to borrow. A higher rate can increase your monthly payments and force you to repay more.
A simple way to test the waters on interest rates is to pre-qualify for a personal loan. Credible allows you to get personal loan prequalification in a few minutes. And since this is just a simple survey, screening won’t affect your credit score.
This can give you an idea of what kind of interest rate you might be entitled to, based on your credit history. You can then use it as a guideline to decide if a personal loan is the best option for borrowing in a crisis.
How to get the best interest rate on a personal loan?
If you want to use a personal loan to pay for expenses in a financial emergency, it is worth trying to get the lowest rates possible.
Meltzer said having an existing relationship with a bank or credit union can help qualify for the best interest rates. If you have a checking account with your bank, for example, and you have a good banking history, the bank might be more inclined to offer you favorable rates.
Apart from that, you can work towards improving your credit score and your overall financial situation. Paying on time, keeping your debt balance low, and limiting new credit applications can all work in your favor.
You can also increase your chances of getting a better rate by compare lenders to see which ones have the best conditions. Again, you can easily compare personal loan options via Credible, without triggering a serious investigation into your credit.
What are my other options?
When you need cash during a financial crisis, it’s important to leave nothing behind.
For example, Meltzer said you might consider borrowing from friends or family. But it’s important to make sure you can pay back what’s owed to avoid disputes down the line.
Increasing your income with a side business or part-time job can also be something you could try. But if you need the money in a pinch, you may want to consider opening a new one zero percent APR credit card.
This can allow you to cover the expenses now without incurring any interest charges. Just be sure to keep the end date of the promotional offer in mind.
If you can’t pay the balance in full before the zero percent APR expires, you might want to look for a balance transfer credit card. Transferring the remaining balance to a new card with an APR of 0% can save you from paying interest.
Keep in mind, however, that most cards charge a fee for balance transfers. Personal loans, on the other hand, may not charge any origination or maintenance fees. And if you can get a lower interest rate on a personal loan, it might be the best way to borrow when money is tight.