An unsecured personal loan can be a blessing to a consumer who knows the do’s and don’ts of the loan process. An unsecured personal loan is generally a lump sum cash paymentthat a consumer can obtain without providing the lender with collateral. Collateral usually consists of security items, such as a car or a house that some lender require their applicants to offer up for security on the loan. An unsecured personal loan can provide a consumer with the cash that he or she needs for a wedding, a vacation, pay down credit card debt or whatever reason. However, choosing one lender blindlymay mean missing out on savings when you repay the loan. The following provides tips on the do’s and don’ts of unsecured personal loans:
Do Check Credit Score First
A consumer should not apply for an unsecured loan until he or she receives a clear picture of the current credit rating. A credit score can affect various aspects of a loan such as the interest rate and repayment length. A consumer might be able to increase the credit score and place himself or herself in a higher bracket before applying for an unsecured personal loan. Disputing strange accounts and paying off debt can raise a credit score rather quickly. The credit bureau may remove suspicious accounts within 30 days. A removed account can boost a consumer’s credit score significantly.
Do Calculate Disposable Income
Another process a consumer will want to complete is calculating his or her disposable income. The disposable income figure is the amount of money that the person has after he or she pays all the monthly bills. The figure is important because it tells the consumer what his or her repayment limits are in terms of personal loans. The disposable income figure is equal to the total monthly income minus the total monthly expenses. The consumer will not want to take a loan if the payments exceed the disposable income.
Do Conduct Lender Research
Research is crucial to a consumer’s reputation and financial status. A person who is shopping for a loan should always conduct thorough research on several lenders in the area. The research should include a visit to each lender’s website and a visit to a consumer rating site. Consumers will voice their opinions on different lender characteristics such as hidden fees, customer service and reliability.
Do Read the Terms and Agreements Carefully
The terms and agreements section of a lender’s site is more important than any other sections is. The consumer will want to read this section to learn about the interest rate, payment schedules, fees and the like. Some lenders charge consumers super-high interest rates. A consumer will want to avoid a situation in which the lender charges a super-high interest rate because the payments will not go toward the loan principal. The goal is to find the most affordable loan available.
Do Not Rush into an Agreement
Many borrowers become excited because a lender issues a quick approval. However, consumers should always sleep on new financial transactions. A smart debtor will never sign a contract without thinking about the situation overnight first. The person will want to consider the length of the loan and his or her current level of stability. For example, a person with an unstable or unreliable job may not want to enter a 36-month agreement.
Do Not Stretch Beyond Feasible Means
The most important “don’t” in unsecured loans is not to stretch beyond one’s feasible means. In other words, a consumer should not enter a contract if the disposable income is not there. Many consumers make the mistake of entering contracts without having the income to repay the loans. The idea of instant cash makes them feel safe and secure. However, an unsecured loan is a financial product that a person must repay with additional interest. A disposable income that is less than the monthly payment amount indicates that the consumer does not have repayment funds. A consumer should take that as a sign to avoid a new loan, as it could end up ruining his or her credit score. Otherwise, the person can sign a new contract with confidence after reviewing the DI figure and giving it at least a few days of thought.