There comes a point in your life when you need some additional cash to pay for things such as emergencies or small home improvements. You don’t always have the money at hand and, in such cases, you must call on personal loans.
These are not the easiest loans to obtain, but they’re not impossible to get either. Having that in mind, here are some things you should know before applying for a personal loan.
Personal Loans Have Fixed Amounts
Usually, depending on your income and credit score, you can borrow a certain amount of money. If your income is high, then the amount of cash you can get will be quite big. Some banks even have a cap on the amount of personal loan you can borrow. The amount also depends on the lender, and you can borrow from $1,000 to $50,000. So, even if you’re a qualified borrower, you may only be able to borrow a maximum of $10,000.
Personal loans are not like credit cards – they represent a one-time loan. So, if you were thinking about doing this again after a while, you should know it’s not possible. They don’t work the same as a revolving credit card balance does.
When you repay the loan, your account is closed, so you have to apply again if you need to borrow more money.
Personal Loans Aren’t Secured
In other words, this indicates that you don’t have to use an asset as collateral. Basically, you don’t have to worry about the lender suddenly taking a piece of your house as a payment. This is one of the things that makes personal loans harder to obtain compared to other methods.
However, if the lender can’t take your house, car or another asset, that doesn’t mean he can’t take other actions. For instance, he may hire collection agencies, report the late payments to credit bureaus, or even file a lawsuit against you.
Personal Loans Affect Your Credit Score
When you apply for a personal loan, you should know how it affects your credit score. Basically, if you don’t make your loan payments on time, this may have a negative impact on the rating. So, if you pay the money on time, you’ll be able to maintain a good balance and not have it influence future encounters.
They Have a Fixed Repayment Period
The periods for personal loans are stated in months. If you have longer repayment periods, they lower your monthly loan repayment. They also mean you will pay more interest than you’d do with a shorter repayment period. Moreover, it indicates that the money will be tied up in the loan for longer.
Longer repayment periods also indicate how you’ll be paying for the loan for longer. If you have an open loan, it may affect your chances to get approved for other credit cards or loans.
Personal loans may help you, but they also have some factors that need to be taken into consideration, as presented in this article. Did you ever apply for a personal loan? If so, how was your experience?