Everyone needs a little extra money from time to time. A personal loan can provide you with the funds you need to cover unexpected medical expenses, car repairs, or even a family vacation.
The key to having a personal loan work as an asset on your behalf instead of becoming an anchor around your neck is to exercise caution during the application process.
Here are three mistakes that you will want to avoid when securing a personal loan so that you don't find yourself in a poor financial situation in the future.
1. Not Paying Attention to the Monthly Payment
A personal loan is a type of installment loan that is repaid over a period of several months. It is critical that you carefully evaluate the monthly payment amount before you sign for any personal loan.
The last thing you want is for your personal loan to place undue hardship on your family. Keep the monthly payment as low as possible so that you won't have to deplete your savings to make your loan payments on time.
You may have to tighten your budget until the personal loan is repaid, but you should have enough income coming in each month to cover your regular expenses and the monthly personal loan payment.
2. Not Shopping For a Low-Interest Rate
You should also evaluate the interest rate associated with a personal loan when looking at the monthly payment amount. Even though the monthly payment may seem feasible if the loan has a high-interest rate it could become a financial burden over time.
The higher the interest rate, the more you will end up repaying for the loan.
Each lending institution establishes its own interest rates for loan products. Check with several banks and credit unions in your area to find the institution offering the lowest interest rate when you need a personal loan.
3. Not Considering Personal Loan Insurance
Life can be unpredictable. It may be beneficial to take out insurance on your personal loan. This is especially true if your personal loan will have a high balance.
Loan insurance helps to compensate the lender in the event you find yourself unable to repay your loan. Your beneficiaries won't have to cover the loan costs if you pass away unexpectedly, and you can protect your credit score should you be unable to pay due to a job loss or illness.
Personal loan insurance provides an added layer of security for your financial future.