Applying for a personal loan has become a viable solution in tacking financial crunches. A personal loan is offered with minimum eligibility or requirements. You can use it for various purposes — during an emergency, home renovation, medical needs, school needs, and even making your travel destination come true.
One huge advantage of a personal loan is you can process it in just minutes. You can apply online by uploading the necessary documents, and voila, they’ll confirm your personal information via call, then they’ll transfer the money to your account.
While the personal loan process is straightforward, awareness is a MUST. You should know what factors can have a huge impact on your finances before even starting.
Below are the do’s and don’ts before getting a personal loan.
- Compare Interest Rate and Other Fees
If it’s your first time taking a loan, settling for a single lender is a big NO.
Pick at least three lenders in your area or online and compare all of them in terms of interest rates. While the “lowest interest rates” is the most common criteria, you should also consider other fees — ask about the penalty if you fail to pay in a month or two, the processing fee upon approval, and other additional fees.
In this way, you have a general idea of which company is more affordable or workable in all aspects.
- Know Your Capability
While taking a loan will save you from financial needs, it is also a huge responsibility. Behind every loan approval are monthly payments that you should meet. Otherwise, you will end up with racking sanctions that you won’t imagine. Thus, you should assess your capability before taking any loan.
In general, you should only borrow an average of 30 to 40% of your monthly income. Let’s say you have a 20, 000 pesos regular monthly income. Then, you can borrow about 6, 000 to 8, 000 pesos. However, that’s not always the case. It would be best if you also consider your expenses. If your monthly expenses hit 15, 000 pesos, you only have 5, 000 pesos left. With this scenario, you start asking yourself if you can still afford to take a loan. If yes, then how much do you think is workable?
- Check Lender’s Credibility
One of the most important steps before taking a loan is to check how trustworthy the lender is. Keep an eye on whether they are serious with their mission, or they’re are only trying to bait you in a crafty fraud.
Check if the business is registered and how long they’ve been in the industry. You can also check their website, social media platforms, and reviews/testimonials. You can ask your family and friends because they might be familiar with your prospective lending company.
As a general rule, it’s safer to welcome a lender with a proven track record.
- Don’t Use Personal Loan to Finance Your Daily Expenses
While you can decide where you will use your personal loan, it is not advisable to use it to finance your daily expenses.
Personal loans suppose to answer your emergency needs such as home repairs, health emergencies, or paying your college tuition fees. If you find yourself submitting the requirements to fund your daily needs, such as food allowance, you should assess what’s going on because it might lead you to serious financial trouble.
If you find yourself in this situation, the best thing to do is to look for a regular job, but if you think taking a loan is the only way, then take it and use it to start a business? Why not!?
- Don’t Take Multiple Loans at Once
Don’t get too excited and jump in multiple loans at once. Various loans may hit you hard in case of unfortunate scenarios.
In addition, each loan application has a credit score check. Failing to pay any of them will result in a negative credit score that will lower your loan eligibility in the future.
- Don’t Ignore Lending Terms and Conditions
Every lending company has its own policies and terms before applying for a loan. Unfortunately, many of us do not take time to read and understand what’s stated on the terms. Most of us skip the jargon and technical terms, not knowing they are essential.
Terms and conditions include mode of payment, penalties, penalty implications, and many more. So the next time you apply for a loan, make sure to read them or ask your lending company if you don’t understand any of the clauses.
- Don’t Shift from Lender to Lender
While experimenting sounds exciting, applying for a loan from multiple companies is highly discouraged. This is because you have no pre-existing relationships with a new lender. They are not familiar with your credit history, account balance, and other habits. Thus, it takes time to gain trust with each other.
Stick to one or two lending companies. In this case, you are not only familiar with them, but you have established a relationship that you’ll reap in the long run.
Ready to Take a Personal Loan?
Personal loans may either make or break you. If you use it wisely, then you’ll get the most out of it, but if not, you’ll find yourself falling into your own trap.
Before taking a loan, ensure that you understand what it is all about — the company, the terms, and every other detail, and if you’re looking for a trusted lending company, Pahiram is always here. Feel free to chat with us if you have any questions.