For the Sake of Convenience: What are the 5 Most Popular Types of Loans?

There are many varied reasons and circumstances where you might need to borrow some money and take out a loan and there is a range of different lending products available that are designed to meet your needs.

Knowing which loan to apply for and what type is the most suitable and appropriate is not always straightforward but it pays to get it right and it is important to understand what type of loan you are applying for.

Here is a look at the most popular types of loans and an overview of their key features and purpose, including details about secured lending, and all about signature loans, where no credit check is required.

Buying a home

Let’s start with the biggest loan you are ever likely to apply for in your lifetime, a mortgage.

A mortgage is a loan that is designed to help you buy your own home and it is designed to allow you to purchase a property where the purchase price is much higher than the amount of cash you have available.

It is a long-term loan that allows you to spread the cost of buying the property over a period of time. A typical mortgage will be from 15 to 30 years in duration and the amount you owe will decrease as you continue with your payments, which is a process known as amortization.

By the time you get to the end of your mortgage period, you will have repaid the loan and interest charges in full and you will have an asset in the form of a property that is, hopefully, worth more than you paid for it in the beginning.

You will be required to contribute a downpayment against the total you are paying for the property, typically about 20% of the purchase price, which provides equity in the property.

The loan is secured against the property and if you default on your payments you could lose your deposit and your home will be subject to foreclosure.

To get a mortgage, you will normally have to demonstrate that you have a regular source of income and a good credit record.

Personal loan

Your credit history is often highly relevant to the consumer loan products that you are eligible for and it is always a good idea to check what your credit score is before you apply for a loan, especially if you have a record of missed payments and defaults.

The higher your credit score, the more chance you have of being granted a loan and paying a lower interest rate against the amount you are borrowing.

However, it should be noted that personal loan products are extremely varied and you can even find loans that offer you the money more quickly than traditional banks without the need for a credit check, although the interest rate charged will reflect the risk to the lender of offering finance without a credit check.

You can apply for a personal loan to fulfil a wide variety of purposes, such as wanting to borrow money to carry out some home improvements, take a special vacation, or to consolidate your borrowings.

Personal loans can be unsecured, which means you don’t have to offer any asset as collateral as you do with a mortgage, or there are loan products that are secured against an asset. An auto loan, for example, uses the vehicle as collateral and it can be taken back from you if you don’t make the payments.

Buying a car

The main point about a personal loan is that you should work out your finances and decide that you can afford the repayments, then choose a product that suits your needs and circumstances.

An auto loan is a popular way to finance your motoring needs.

The typical term for an auto loan is between 24 to 60 months and it often depends on the age and value of the vehicle when it comes to how long you get to repay the money borrowed against the value of the car.

Cars depreciate in value and if it is being used as collateral there is a risk to the lender that it will be worth less than they are owed, hence the reason to restrict how long the loan period is.

A new car that is of a higher value can often be paid over 48 to 72 months, whereas an older car will normally require a shorter repayment period.

You should be mindful that if you default on an auto loan the lender can still pursue you for any money still owing on the loan even after they have seized the vehicle. This is another good reason for being sensible about how much you borrow and how long you take the loan out for, bearing in mind that cars drop in value as they get older.

Student loan

A number of us will have to consider the option of taking out a student loan to pay for the education we need in order to get the qualifications required to start a career.

Most students tend to take out federal student loans with a fixed interest rate and terms that means you don’t have to repay the debt until after you have graduated.

There are caps on federal loans and this could result in a shortfall in the amount required to complete your education. In these circumstances, you can apply for a personal loan, but you should note that the interest rate will be variable and, therefore, it could go up or down, which is something you need to be prepared for.

Credit cards

Finally, it is relevant to consider credit cards as a type of loan as you are being offered a line of credit which you can spend when and how you like, within reason.

The fundamental difference with credit card borrowing is that there is no fixed term for repayment and this could result in you accumulating a debt balance that takes longer to repay than a conventional loan repaid over a specific period.

If you need money for a specific purpose it pays to check out whether a personal loan could be a better option as interest rates on credit cards can be high.

Consumer loans are often flexible and convenient, and if you use them in the right way it can allow you to get on with your plans.

How do cash loans work?

Did your car unexpectedly break down and your payday is nowhere near sight?

If you’ve ever been in a similar pressing financial situation, you may have heard about cash loans. Popularly known for immediate availability by lenders, cash loans are short-term personal loans typically used for financial emergencies.

The process of applying for a cash loan is rather quick and simpler than most other forms of borrowing. Here’s how a cash loan application works-

1. The application process – usually online

You have to fill out an online application form. This usually requires personal, contact, employment and financial details. This essential information will allow the lender to assess your application and determine your eligibility.

Lenders will carry out credit checks. This doesn’t mean your application will be automatically rejected because of your past defaults. They focus more on your recent history and your current ability to repay a loan.

2. Approval

After verifying your information, the lender will outline the terms of your loan. You can easily e-sign this online. It takes a couple of minutes.

3. Disbursal

Once you have signed the offer, the lender will carry out a few final checks before the approval.

Once your application is approved, you will receive the cash on the same day or even within an hour.

So why have cash loans gained popularity? Let’s look at some of the benefits-

  • Fast and Easy Approval

Fast cash loans live up to their name as they are perhaps the quickest form of personal loans. These loans can be applied for, approved and disbursed, on the same day. The application process is easy with minimal paperwork. This makes them an ideal source of finance when unexpected expenses arise.

  • Easy Procurement

One of the major advantages of cash loans is the ease of procurement. You don’t have to visit the bank, as the entire process is online. You can obtain it from the comfort of your home, office or wherever you are. All you need is an Internet connection and the necessary documents.

  • No Collateral

Unlike many other borrowing avenues, cash loans don’t require any collateral in exchange. Since it’s an unsecured loan, you don’t have to put your house, car or any other asset at stake.

  • Credit Score

A bad or lack of credit score is most likely to affect your eligibility to procure a conventional loan. But in case of cash loans, your credit score won’t impact your application. As long as you have a stable and regular income, your application will likely be approved.

  • Quick Disbursal

A medical expense or an unexpected repair will demand immediate funds. The application, approval and disbursal of cash loan are all completed in a day. Once you are approved, you will receive cash on the same day or even within an hour.

Cash loans are certainly a convenient source of short-term borrowing. However, there are a few things you should keep in mind

  • Beware of scammers

Since the process of cash loan is almost entirely carried out online, there is a risk of being scammed.  You should make sure that the lender has all the necessary accreditation before sharing any information.

  • Borrow for emergencies only

The ease of obtaining a cash loan doesn’t always make it the best option. A cash loan should be considered when you know your next pay cheque will come through on time. Moreover, only choose a cash loan for emergencies that can’t be deferred. It would be a poor decision to avail yourself of a loan for something that’s frivolous and unnecessary.

  • Fees and cost involved

Don’t be deceived by simplistic terms and conditions presented by some lenders. Thoroughly read and understand what fees and costs are involved so that you’re not caught off-guard by hidden costs.

  • Repayment period

The repayment date might just sneak up on you. The repayment period is short compared to the amount you have to repay. Often lenders impose considerable fines for delayed payments.

  • Limit the borrowing

No matter what the borrowing limit is, only borrow the amount you actually need. Borrowing more would also mean a higher amount to be repaid. So, try and limit the borrowing.

Now that you have a better understanding of how cash loans work. Remember, it is important to research thoroughly before signing up for any kind of loan.

How to Get a Loan if You Have Bad Credit

So, are you looking to make some much-needed home improvements? Maybe you are expecting a child and need to upgrade your car. Or perhaps you just fancy a nice break and want to take your family on holiday. But, your credit score is holding you back from securing the much-needed financial boost to make your plans a reality? Don’t worry! There are lenders that specialise in personal loans for those who have suffered with a bad credit score in the past. And, looking for these bad credit loans has never been easier so what are the options that are available to you?

Secured Loans

Secured loans require an asset of high value which is normally your property. What this means is that if you take out a loan and fail to keep up with the repayments, then your home could become the lender’s property. This type of loan is much easier to secure if you have a bad credit history because the lender has the security of your home as a financial backup.

Secured loans can be an excellent option for homeowners who are in need of a much-needed financial boost and are confident that they can make all of the loan repayments and on time. However, taking out a loan of this type isn’t a decision that you should make in a rush as it is a big financial commitment to make. Before taking out a secured loan, you must carefully evaluate your income and your outgoings to determine whether you can make the repayments.

Unsecured Loans

Unsecured loans are loans that are offered to individuals without the lender requiring a financial asset as security.  This means that the risk of not paying the money back in time is a lot lower compared to a secured loan. However, there are still a few drawbacks associated with taking out this type of loan.

In general, unsecured loans are much harder to obtain if you have a poor credit score, and if you want your loan application to be successful, you are likely to carry a much higher interest rate. However, this shouldn’t always be regarded as a negative thing. Unsecured loans are much easier to secure, and if you have a poor credit score that you want to improve, then this can be one of the most effective means of doing so.

Another drawback is that you default on an unsecured loan, the lender still has the legal right to take action against you in order to get the money back that they lent you.

Things You Can Do To Improve Your Bad Credit Score

Your credit score is a major key player as to whether you will secure any type of personal loan whether it be secured or unsecured. The better you have managed your finances in the past will mean that you are more likely to be offered lower interest rates on most types of credit and this also includes mortgages. And, apart from managing your finances and paying back any outstanding loans on time, there are a few different things you can do to improve your bad credit score.

Consider a Prepaid Card

Unlike a credit card, you don’t need to be credit checked to get a prepaid card. These cards are very simple to use and work in a very similar way to pay-as-you-go SIM cards.

Use Your Savings to Cut Down Existing Debt

One very simple and effective way of cutting down any existing debt is by using your savings if you have some. Although you may have a sense of comfort knowing that you have savings in the bank, it’s worth thinking about the benefits of parting with them. You will pay much less interest back plus you will have more credit available to you once the existing debt has been paid off.

If you have a savings pot in place for emergencies then don’t worry about using them to pay back debt. Because, if a situation does arise where you need access to additional finance then you will be able to use credit instead.

Check Your Credit Report for Any Mistakes

Mistakes can be made by banks and lenders which means that the wrong information could be passed onto credit reference agencies. This is why it is important to check your credit report every now and then to ensure that all of your financial information is accurate.

Register to Vote

The electoral register is one of the things that credit reference agencies check to confirm your identity. This is so they can double check for any fraudulent credit applications. Just registering reassures a lender that you are a real person.

 

 

Borrower Beware: 5 Things to Consider Before Taking Out a Bank Loan

Happy young couple signing agreement or contract. Health insurance document, bank loan, mortgage or apartment rental paper. Woman and man having meeting with salesman or real estate agent.

It’s estimated that one out of six Canadians is struggling with their household finances. Due to these financial stresses and concerns, many people consider taking out a bank loan.

While this can be a viable way to get the funds that are needed, it’s important to consider a few things before moving forward with this process. Keep reading to find out what you need to think about before accepting this loan.

1. Why Do You Need the Money? Is There Another Option?

It’s important to know why you need the money and this is the most critical factor to consider before taking out a loan. After all, borrowing money is a huge financial step, and it can either help or hurt you – based on how you manage it.

While you can take out bank loans for any purpose, consider whether or not it’s absolutely essential and if you have the funds to pay it back. If the loan isn’t absolutely essential, and it may put you in a financial bind in the future, then it probably isn’t worth it.

2. Get to Know Your Credit Score

Once you know why you want the loan and are confident you can repay it, you need to figure out what type of loan you can qualify for. This is where your credit score comes in.

Your credit history and credit score are the lifeblood of your financial health. If you don’t have credit – specifically good credit – then getting lower rates, lower payments, and more savings.

You need to get to know your credit rating before applying for a loan. If improvements are needed, make them before applying.

3. Get to Know the Specific Terms of Your Loan

Before you sign the papers for your new loan, be sure that you understand all the terms. This includes the annual percentage rate, the total cost that you are going to pay for the loan, and all the fees that may be applied to it.

Some of the specific fees that you need to find out about include:

  • The loan origination or loan processing fee
  • A failed payment fee
  • Prepayment penalties
  • Late payment fees

It’s also important to know how the interest is calculated on the loan that you are considering taking out. If interest is compounded, it is going to build on top of the existing interest while you try to pay off the loan.

This is usually calculated on a monthly or even a daily basis, so it is smart to make early or additional payments to reduce this cost.

Taking out a Bank Loan: Now You Know

If you are thinking about taking out a bank loan, then considering the information here is a must. This will ensure you are prepared for the loan that you ultimately receive.

If you are looking for more information about managing your finances, it’s a good idea to read some of our other informative blogs. For example, we have a blog on how to make money from Pinterest.

What Kind of Loans Exist and Which Ones are the Best for You?

In a fix and need some money quickly? You’re not alone. It’s something many of us have been through. Thankfully, there are more ways than ever to get that money you need these days. While you might be able to sell something or find some other way to raise capital, one of the best and most effective ways to raise large sums of money these days is with a loan.

However, simply getting a “loan” isn’t that straightforward. If you’re new to this sort of money-management, you probably don’t know where to start. The reality is that there are so many different types of loans knowing which one is right for you can be a bit confusing. Thankfully, you’re in the right place. In this article, we’re going to look at a number of different loan types so you can have a bit more info on whether they’re right for you, and how much they might end up costing.

Short-term income loans

These sorts of loans are getting more and more popular. You might have seen adverts for them on television or even some stores popping up in your local area. If you need money quickly, they can be an effective way to tide you over until you next get paid. That’s what these loans are designed for. They aren’t really for longer periods of time, as interest rates can be very high.

Obviously, you’ll need to have a job to get a payday loan and your earnings will be checked to determine how much you can borrow. Make sure you pay this sort of loan back as quickly as possible as the fees and rates can be really high, and you could get into a situation of spiralling debt. While you won’t be able to borrow a huge amount with these loans, it could be a quick way to get some useful money. And they’re reasonably easy to qualify for. These loans can be one of the better if you need quick money.

Mortgages

You probably know about mortgages already, but not everyone knows that they’re a type of loan, too. These loans are predominantly for buying houses and normally have payback periods of 25-30 years. You’ll end up paying a lot more than the value of the house in the long run, but there often aren’t really any other options if you want to own your own property, as up-front costs can be huge.

The good news with mortgages is that the rates are very low. That’s because it’s got such a long repayment period and because the risk is relatively low for the lender (they can take your property if they have to). However, mortgages have become slightly harder to get in recent years since the credit crunch. Before then, almost anyone could qualify and you could often get massive multiples of what you earn. Mortgages are one of the more well-known revenue based loan options around.

Nowadays, lenders are a bit more careful. You can generally borrow around 5 times your yearly salary in a mortgage. This can vary a bit for families and other types of borrowers. One important thing to remember with mortgages is that you will still need a deposit. Most lenders these days will need about 5% of the total value of the property. Paying a bigger deposit could get you even better terms.

Traditional bank loans

If you just want a medium amount of money (more than a payday loan but way less than a mortgage), you could simply try a traditional bank loan. These are often overlooked these days with tons of different ways to raise capital, but they could still be viable. These sorts of loans should be seen as medium-term options. They won’t have rates as low as mortgages but should be a bit better than payday loans.

You will have to qualify for this sort of loan, and that isn’t always straightforward. You might need to tell the lender what you need the money for and you will have to show proof you’ve got the means to pay it back (normally a history of your earnings). To improve your chances, you might be able to put something up as collateral (like a vehicle).

Business loans

If you’ve got a business that you need money for, that’s a whole other area of financing. Most of the advice so far has been for individuals rather than businesses. Business loans can work similarly to traditional bank loans and might afford you a reasonable sum with acceptable medium-term rates.

The amount you can borrow and your likelihood of getting accepted will depend on the sort of business you’re running and what your cash flow is like. Lenders generally prefer to give money to established businesses that are doing well enough to pay them back.

Overdraft

You don’t want to use your overdraft to get money unless you have to. You could be charged huge rates. Your overdraft should be a last resort unless you’re absolutely desperate for money, or if you’ve got a 0% fee overdraft.

Credit card

Again, credit cards aren’t a great place to take out money in the long term. The best way to use a credit card is to treat it like a debit card and pay it off each month. The only exception to this is if you can make the most of an interest-free period. Even then, you need to be careful.

Pawn shop loans

If you’ve got an item of value that you don’t need but would still like to keep long-term, you could sell it to a pawn shop. Just make sure you buy it back in time (it’ll cost more) or they’ll be free to sell it on.

Funding clubs

If you’re a business and don’t want to use a traditional loan, you could look at funding clubs as a new innovative way to get capital.

Business investors

If you don’t want to pay loan rates but are happy giving up a portion of the equity in your business, you could try finding a business investor. These types of lenders will look for businesses with great potential, and you’ll have to give up a fair percentage, but you could also get some additional expertise to help your venture thrive, as well as money.

Life Loans – What You Need To Know About Personal Loans

As we age, taking on debt is more serious than not paying your parents back that couple of hundred dollars needed to float you through the end of the term at university. The personal loan becomes more than borrowing an extra fifty dollars from your sister to buy those new jeans. While you can skip out on your family, skipping out on a personal loan can have serious consequences for your financial health.

Because debt is so commonplace, more specifically personal loans, a person can get pretty much anything financed with the right income and credit score. Furthermore, it can be a good way to establish credit history, so when you do have to make major purchases down the line you have established your creditworthiness. Finally, online tools have created pathways for consumers to learn about the many different types of personal loans and how to leverage debt to your advantage.

Let’s take a closer look at what you should know before taking out a personal loan.

What Exactly Is A Personal Loan?

Personal loans can be used for just about any purpose.  Repairs or renovations to a home, financing a trip, making major purchases, and any project or purchases that benefit the person applying for the loan. Most are unsecured loans that have very strict requirements. For example, a Latitude personal loan requires applicants have proof of employment and a good credit history, as well as other requirements. While typically most loans are more difficult to qualify for than your standard credit card, the loan program might vary depending on the financial institution.

What Are Common Features Of The Personal Loan?

The personal loan usually has a fixed interest rate determined during the application process. Loan amounts can run as little as a couple of hundred dollars to as much as $50,000. Because the rates are fixed, the payments are fixed as well and typically last anywhere between one and twelve years.

While most rates are fixed, there is a chance you will come across variable interest rate loans. The disadvantage of these types of loans is your payment fluctuates as the interest rates do, and while at first, the rate might be extremely low (and the payment), if the rate increases your payment might balloon as well. In any case, shopping around can help you determine whether a fixed or variable rate loan can help you.

How Do Personal Loans Affect Your Overall Credit?

The personal loan can affect your credit in a few ways. For one, every time you apply for a loan, the application is treated as though you have opened a line of credit, even if you are not approved for the loan. This is significant because the application is treated like an open line of credit and it is considered when calculating your debt-to-income ratio. If looking to make other major purchases, you want to avoid applying to too many financing companies because every application lowers the amount of money you can borrow.

Then, the personal loan can help you establish, or conversely destroy, your credit report. Payments that are made on time establish you as good credit risk, and alternatively, late payments, delinquent payments, and charge-offs (not paying at all) can wreak havoc on your score. Finally, every mark on your report, including any loans, stays on the report for at least seven years.

Financial Acuity And The Personal Loan

As already mentioned, the personal loan is more serious than a credit card. At the same time, though, it can be used to establish credit history. If looking to make improvements on a home, purchasing a car, or any other major project, the personal loan is one of the most common ways to secure finances.

Do You Need Fast Cash? The Pros and Cons of Personal Loans

If you need fast cash, a personal loan is an option. You also need to worry about repayment and interest rates. Here are the pros and cons of personal loans.

Money problems keep 65% of Americans up at night.

Stressing over money isn’t only unpleasant, it’s dangerous too. Your body reacts negatively to high levels of stress. Cardiovascular disease, high blood pressure, depression, anxiety and more can all result from chronic stress.

Instead of worrying about paying your bills, maybe you’re considering getting a personal loan. When you use them correctly a personal loan could be the answer to your financial problems.

However, if you don’t use the loan correctly, you might end up in a worse situation than you began with.

We wrote this article to clearly define the pros and cons of personal loans. Read on to find out what the best choice will be for you.

Pros and Cons of Personal Loans

Before we explore the pros and cons of personal loans, we’ll explain how a personal loan works. These types of loans have fixed monthly payments. Usually, you will receive the money from a bank, credit union or online lender.

Annual Percentage Rates

Your lender rates can vary depending on the institution where you get the loan. You can expect a rate that falls anywhere between 7% to 36% Annual Percentage Rate (APR). The total interest you’ll pay along with extra charges create your APR.

Qualifying Factors

Lenders will qualify you for the loan using several different factors. One of the things they’ll be looking at is your credit score and credit reports. After they review your credit score, lenders will want to see your credit to debt ratio.

The better your credit the lower your rate will be. When you’re credit score is below 600 it’ll be difficult to find any lender. If you have a very low credit score, and you do find a lender, the rates will be extremely high.

Compare Rates

Before you choose your personal loan, you should do some shopping. Find a reputable company to help you with the credit review. Compare rates from different vendors and find the one with the lowest APR.

Be careful as you’re shopping that not every lender is running your credit score. You want to limit the number of times an institution runs your credit. Excessive credit checks will affect your credit score.

Now that you understand how a personal loan works, let’s look at the pros of getting one.

Pro: Personal Property Stays Safe

One of the best personal loan advantages is the peace of mind that you’re property is safe. A secured personal loan will not require you to back it with any type of collateral.

If you default on your loan you won’t have to worry about losing your assets. For example, other loans might require you to place your house or car as collateral.

In the event you can’t pay off your loan, the lender would get your house. You never know when a major life event will prevent you from making a payment. However, with a personal loan, you’ll know that you and your loved ones will always have a place to live.

Pro: Simple Application Process

Next, you’ll enjoy being able to conveniently apply for a personal loan. In the past, the application process was extremely tedious and difficult.

However, with the ability to use an online vendor, the application and approval process can take less than 24 hours.

Within a couple of days, you can have all of the money you need.

Pro: Consolidate Debt

Finally, your personal loan is helpful in consolidating your debt. If you have different types of debt, like credit cards, a personal loan could be your way of refinancing.

The Federal Reserve shows personal loan rates are going down while credit card rates are going up. The average personal loan rate averages around 9.7% while credit card rates are averaging close to 14%.

If you have a lot of credit card debt, you could get a personal loan to repay it. You’ll save money because you’re interest rate will be considerably lower. While 9.7% is the average rate for personal loans your rate could be as low as 6%.

The state of your credit, of course, will determine if your rate is closer to 6% or 9%. Once you’re debt free you can start building your financial future.

Now you know more about personal loan advantages. Next, we’ll explain the potential disadvantages of receiving a personal loan.

Con: Budget Concerns

Emergencies are usually the reason people apply for a personal loan. The urgency of needing the money right now is the guiding force behind their decision. You put your finances in danger if you buy a loan without reviewing your budget.

Before you agree to any loan, find out what the monthly payments will be. If the payments don’t fit in your current budget, don’t get the loan.

Con: Origination Fee

Interest isn’t the only expense your personal loan will carry. You’ll also be responsible for paying the origination fees. The processing of the loan costs the lender money so they charge you origination fees.

Normally the fee will range between 1% all the way up to 6% of the amount you’re borrowing. When you take out the loan you’ll have to pay the origination fees up front.

This can be especially upsetting to individuals who are tight on money. Having to pay a bill right away with the loan money received can seem counterproductive.

Con: Scams

Beware of all the scammers out there waiting to take advantage of you. Not every loan offer you’ll receive will originate from a legitimate source. Usually, scammers will offer you a fake loan to get your personal information.

Once they have your personal information you’ll be at risk for identity theft. Other scammers will even ask for an upfront fee to secure the loan.

After they receive the fee they disappear into the night. This scam even has a name, it’s called the “advance-fee scam“.

Guidance on Your Financial Journey

The pros and cons of personal loans will be different for every individual.

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Should I Get a Personal Loan? 6 Signs It Might Be a Good Idea

If you’re wondering; should I get a personal loan? Then this blog article’s a must-read. Click here for more info and see whether it’s the right choice for you!

Should I get a personal loan?

If you’re asking yourself that question, you’re in good company. From medical emergencies to car repairs to consolidating debt, millions of Americans are turning to personal loans as a solution.

In fact, a staggering 83 million people–or 34% of Americans–have taken out a personal loan in the past year.

That’s great for them, but what about you? Is taking out a loan the best way to handle your unique financial situation?

Here are six things to consider before you take out a personal loan.

1. What Are You Using It For?

Personal loans are classified as unsecured debt, which means you don’t have to put down any collateral to get it.

The good news is that most personal loans offer a lower interest rate than credit cards. This makes it a great choice for consolidating and paying off high-interest credit card debt.

If you’ve fallen on hard times due to medical bills, unemployment, or other factors beyond your control, this could be a viable way for you to get back on your feet financially.

Still, caution is needed. Lower interest rates might tempt you to take out a personal loan to finance a luxurious vacation or an expensive piece of jewelry.

Don’t do it! Debt is debt–and a personal loan is no exception. If you regularly get in the habit of buying high-ticket items you can’t afford, it’ll take more than a personal loan to bail you out.

2. How’s Your Credit Score?

Assuming you have legitimate reasons to take out a personal loan (not for a trip to Tahiti), what are some factors to consider?

A major one is your credit score. Lenders need to know that you’re trustworthy before they’ll give you money for any “personal” reason.

Think about it this way. A lender can repossess your car or your house if you fail to make payments, right?

But what happens if you fail to pay back a personal loan? Short of sending you to collections, there’s nothing they can physically take to repay the loan.

The better your credit score, the more trustworthy you appear to lenders. That’s not to say it’s impossible to get a personal loan if you have poor or average credit. You’ll just have to pay a higher interest rate for it.

3. What Are the Repayments Like?

Unlike a 40-year mortgage or other long-term loans, personal loans are generally capped at seven years.

That means that whatever amount you borrow, you’ll need to repay it in seven years or less (with interest).

In a financial pinch, you may not have much of a choice. But let’s say you’re taking out the loan to finance a large, expensive project, like a major remodel on your house.

How much will you need to pay back every month? Do you earn enough or have enough savings to cover the monthly payments? If the payments are too high, you could easily fall behind–and fall into even more debt than you started with.

If you’re unsure how much you need to borrow or what your monthly payments might be, a loan calculator is a good place to start.

4. Who Are You Borrowing From?

If you have a good working relationship with your current bank, that’s a great place to apply for a personal loan.

But banks aren’t the only option out there. Many credit unions offer personal loans with better interest rates and lower fees than major banks.

In recent years, online marketplace lending has also been a popular source for personal loans. It’s basically a digital “matchmaking” system that pairs borrowers and lenders quickly and easily.

Whichever avenue you choose, be sure you’re borrowing from a reputable lending company. The internet can be a powerful tool to get you the cash you need, but there are also plenty of loan scams out there.

5. Have You Considered Other Options?

A personal loan may be the best option for you–or it might not be.

Before you send in your application, make sure you’ve considered other viable financial paths.

For example, some people seek out personal loans to consolidate higher-interest student loans. This sounds great on the surface, but what are you giving up? Many student loans come with federal benefits or loan-specific protections that you’d lose by refinancing.

What if you’re trying to consolidate credit card debt? Shop around for a new credit card that offers a promotional zero-percent interest rate on balance transfers.

You might also consider borrowing from a Roth IRA or retirement account to temporarily cover your expenses. If you do, just make sure to pay yourself back when your finances stabilize.

6. Does the Loan Come with Hidden Fees?

Before you make any final decisions on a personal loan, be sure to read all the fine print.

Many lenders try to sneak in an insurance policy right before you sign a deal. They may even say it’s legally required for personal loans (it’s not, by the way).

If you choose to add such coverage to protect your family from a financial burden, that’s fine. Just make that decision because you’ve researched it and thought about it, not because you feel pressured.

Another question to ask the lender is if there are any penalties for paying off the loan early. If your financial situation improves quickly and you’re able to pay off the loan ahead of schedule, wouldn’t that be a nice option to have?

Should I Get a Personal Loan? Final Thoughts

As you can see, there are pros and cons to taking out a personal loan.

Because every financial situation is unique, your best bet is to weigh your options and make an informed decision.

Of course, “Should I get a personal loan?” isn’t the only important question to ask. To get (and stay) out of debt, you need to get in the habit of making smart decisions with your finances.

Click here for our latest insights into smarter ways to handle your money.