Getting a personal loan is not really a sign of inability to manage finances. Factors such as economic setbacks, delayed salaries, medical emergencies, or other emergencies, can affect one’s daily or weekly spending power. So when you want to apply for the first time, take some few reminders with you.
Some things you need to know before taking up a personal loan.
Personal loans aren’t as scary as they sound. If you know what you are doing, a personal loan can be a handy tool to manage your cash flow. Suss out these tips and arm yourself with some basic financial knowledge!
1) Know the difference between secured and unsecured loans
There are two kinds of loans: Secured loans require borrowers to pledge their assets, and when the borrower defaults on the secured loan, the lender can sell off the pledged assets to recover the money owed. Other loans such as education and renovation loans, or even a personal loan are known as unsecured loans. Lenders do not have the securities of a pledged asset in an unsecured loan, so they tend to charge higher interest rates, and borrowers are motivated to repay the debt on a regular basis.
2) Use personal loans to ease cash flow
As a rule of thumb, personal loans should always be used on something you need, not want. Preferably, the loan should ease your cash flow, help you gain possession of an appreciating asset, or help you generate positive cash flow. It is not wise to take up personal loans to pursue material objects (which may not be necessary) such as a new television or a new mobile phone. But no matter what the reason is for taking up a personal loan, just make sure to plan ahead for repayment.
3) Know your repayment plans before borrowing
It’s easy to get cash in hand, but it may not be as simple to think and deliberate upon the repayment process. Think anyway — it’s a must! Before you apply for your loan, designate and set aside the monthly payment amount you can reasonably afford. Once you have determined this repayment amount, try to secure a loan agreement that allows you to repay the loan as fast as you can without exceeding your budget.
4) Have your best interests at heart
Interest rates are constantly fluctuating, but this means that as a borrower, it’s up to you to decide when to borrow to get the best rates possible in …