Consumer loans, also known as personal loans can offer the funds you need for a variety of purchases such as renovating a home, medical expenses, vacation, and etc. Personal loans must be paid back on a set time frame. You can apply for a personal loan from many source such as bank, and credit union. Each lender offers a different interest rate with different terms. You should take time to do research on each of the lenders so that you can sign up for the right loan.
The first thing that you should do when planning to get a consumer loan is to determine the exact amount that you need to borrow. It is important that you don’t borrow more than you can afford as it can cause you to fall into debt problem. You should look for a loan with a fixed interest rate so that you will be making the same fixed amount every month. If the loan has a variable rate, the interest rate can increase and subsequently increase your repayment. Most unsecured loans offer fixed interest rates. Secured loans usually have variable interest rate that can change from time to time.
Your credit score plays an important role in determining the interest rate that you get. For example, a good credit score can help you to get an interest rate that is lower than 10%. On the other hand, you will get assigned with an interest rate that is as high as 20% or more if you have a bad credit score. Prior to applying the loan, make sure you review your credit report and check to see if all the records are accurate. If you don’t have a good credit score, you should first build up your credit score by applying a secured credit card and promptly making the monthly repayment.
If possible, you should choose the shortest loan term offered by the bank. Longer loan term means you have to pay more interest rate. With a short loan term, you can quickly pay off the loan if you are discipline and set aside money to pay the loan every month. If you plan to repay the loan early, make sure the loan does not charge a prepayment penalty.
Even if the loan offer low interest rate, there may be other fees that the bank charge. You can find out information on the fees by checking the fine print. For example, many banks like to charge high origination fee to compensate for the low interest rate. In this case, it would be cheaper to apply for a high interest loan than a loan that charges origination fee. Some of the different types of hidden fees that are charged on a loan are administration fee, arrangement fee, late payment fee, and penalty APR.