If you’re facing a financial crisis in your business, you might want to consider taking out a personal loan to cover the shortfall.
A personal loan can help you pay for repairs and renovations to your home or business, as well as payroll and other business expenses. Additionally, you can use a personal loan to pay for medical expenses and travel-related costs, and more.
Personal loans are generally unsecured. This means that you don’t need to put up anything you own as security for the loan. Therefore, you won’t lose sleep from worrying about losing your pledged asset if you can’t repay the borrower.
However, as with all financial instruments, a personal loan can be tricky. Therefore, before you apply for a personal loan you should ask yourself a few important questions.
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1. Have I done enough research?
Instead of applying for the first personal loan you find online, do some research and try to be objective about the quality of the loan. Go to one of the many comparison sites you’ll find online, where you can review data about multiple loans in a single location.
Shortlist a few lenders, then visit their individual websites. Validate the information you found on the review sites, and begin getting in touch with some of the lenders for informal discussions. Finally, never hesitate to shop around and don’t fall for marketing gimmicks.
2. How will it affect my debt burden?
If you already have significant debt or have applied for another loan within the last three months, you need to be careful. That’s because if the lender determines that you don’t have enough cash flow to pay your debts, they may reject your application. What’s more, this will negatively affect your credit score.
Also, are you planning to take out another loan in the near future, such as a mortgage or a car loan? If the lender you go to for that mortgage or car loan sees that you’re already overly indebted, you might not be able to purchase the home or car you have your sights set on.
3. Is this the right loan for me?
On the one hand, if you need to consolidate your debts, go for a debt consolidation plan. Lenders like Citi or HSBC offer loans with affordable annual percentage rates (APR). They also have low processing fees and tenure of 8-10 years.
On the other hand, if you need funds for only a short time, choose a loan with a low effective interest rate (EIR). Keep the tenure short and try to pay the loan off quickly.
Alternatively, if you have a fixed deposit or something similar, you can get a bigger loan. Do this by pledging this as an asset to your bank. Your annual salary or credit score would become less relevant in such a case.
Keep in mind that the right personal loan will not only solve your present financial problems but also improve your credit score.
4. Have I carefully studied the terms and conditions of the loan?
Reading the terms and conditions of any loan you apply for is extremely important. Find out all there is to know about charges, penalties, default clauses, APR and EIR, any annual fees, and eligibility criteria. Additionally, check whether you get the published rates, something better, or worse. Most banks offer rates on a case-by-case basis.
5. Can I afford to make the monthly payments?
Analyze your liabilities, debt obligations, and commitments before deciding whether you can afford to make the monthly payments. One good thing about term loans is that the loan contribution amount usually doesn’t change throughout the tenure.
However, that also means that you won’t ever be able to make a payment of less than the agreed-upon monthly payment amount. Further, if you default on the loan, it will destroy your credit rating quickly.
6. Is my credit score good enough to make me eligible for the loan?
Checking your credit score is easy. There are multiple websites that help you check your score for free. If your score is not high enough to obtain a personal loan, talk to a financial expert for advice.
7. Do I have my documents in order?
You’ll need to have your salary documents, tax papers, NRIC, passport, employment pass, and other important documents in hand in order to apply for a personal loan.
8. Do I need a guarantor?
Some lenders may want you to get a co-signer or guarantor for your loan. Do you have somebody in mind? Have you approached that person? Is he or she willing to help you?
Furthermore, what are the lender’s conditions for having a guarantor? Is your backer okay with these terms? You need answers to these questions before proceeding further.
Getting a personal loan is not difficult if you have a decent credit score. Just remember to have your documents in order and have them with you. Keep in mind that if you manage your debts well, you can improve your credit score significantly and enjoy a better life.