When Should You Take Out a Personal Loan – 3 Things to Consider Before Applying For One

Personal loans are slowly changing the way people work with banks. This is partly because the conditions for taking out one of these loans are considerably less strict than that of other types of debt. Furthermore, most lenders will allow you to take out a personal loan without having to put up any collateral, as long as you do not want to borrow too much money.

Overall, personal loans are quickly becoming the most popular type of debt in the US, mostly because the lenders place no restrictions on what individuals can do with the money. As long as you make your monthly payments, you can use the loan to pay for products, buy property, invest in stocks, start a business, or pay for a vacation.

This having been said, the fact that getting a personal loan is extremely easy does not mean that it is a good idea to apply for one. As with any other type of debt, it should be used sparingly to avoid lowering your credit score.

The best time to take out a personal loan

Borrowing money from lenders like Adherents, especially in large amounts, only makes sense if you know that it will be actively useful to you. In other words, getting a personal loan is a great idea if you want to start a business and have everything figured out but need more money to get things off the ground. You can also borrow money and use it to pay for urgent expenses such as medical procedures, medication, assistive equipment, or to pay your taxes.

Personal loans can also be used to consolidate existing debt, however, most banks will usually give you a better deal if you ask them specifically for a debt consolidation loan.

The common denominators here are urgency and usefulness. The best time to take out a personal loan is the moment when you need a large amount of money to pay for something important. Borrowing money from the bank to buy an expensive phone or laptop, or to use for day-to-day expenses while you have a stable source of income doesn’t count as an emergency.

Technically speaking, if you want to take out a personal loan, you should keep your eyes open and choose the moment when lenders offer the best deals. On one hand, make sure that your credit score is as high as possible. On the other, look at how the economy changes and either get a fixed-rate loan when the terms and conditions are good or a variable rate one if you estimate that the rate will drop in the near future.

The worst time to get a personal loan

As a rule of thumb, if you do not have an urgent need for money, you should avoid taking out any type of term loan. While you may be tempted to use the money that you can borrow to buy electronics, clothes, or other premium items, the loan would cost you more than if you were to save up cash and get the products. This is because you have to also factor in the interest rate, which will grow if you either have a low credit score or borrow a very large amount of money.

Generally speaking, the worst time to get a personal loan is when the economy is unstable. Even if you get a fixed interest rate, the instability may cause other expenses to grow or even lead to you losing your job. Furthermore, if your credit score is low, lenders may refuse to give you unsecured loans, of any type, and also give you disadvantageous terms and conditions.

Use alternatives if you’re not sure about getting a loan

If you want to buy an expensive product, a gift, or need money to go on a short vacation, there are other ways of getting the money that you need. Payday advances are often offered by employers and there are also several online platforms that give out short-term loans. However, you should keep in mind that regular loans will affect your credit score while online ones will not be reported to credit register companies.

Conclusion

Personal loans are easy to get, but they can damage your financial record if not handled properly. Try to avoid taking out personal loans in order to pay for products and services that you do not need and always take into account how the economy is changing. Taking out unsecured personal loans in times of instability can damage your credit score and secured ones may lead to the banks taking your property.

Unless you are facing an emergency and need to get a large amount of money, making a monthly budget and saving up is better than borrowing money.

Should You Ever Refuse To Cosign A Loan? – 3 Situations When You Should Not Risk Your Financial Reputation

The ability to cosign a loan is one of the most popular options when it comes to borrowing money without having to have a great credit score. Although creditors initially came up with this possibility in order to enable groups of people to loan money, this type of agreement is now used to help those with a low credit score borrow money when then need it. Unfortunately, this financial decision can also be extremely risky, especially if you are the one who is helping someone with a bad history when it comes to debt.

This having been said, although cosigning is meant to help everyone, regardless of credit score or bank relationship, get a loan, it does come with serious risks, for all parties involved. Depending on the type of loan that you cosign, you may find that your own financial affairs will be seriously affected. Here is what can go wrong when cosigning a loan:

If the borrower has a history of handling money badly

Cosigning a loan is a very serious decision, especially if a lot of money is involved. You are essentially putting your entire financial reputation on the line to help another individual that may not be eligible for a loan. In most cases, the ones that are usually turned down by banks are those who have a history of bad debt.

You should not take this detail lightly. If you want to cosign a loan with someone who has a low credit score, make sure that the individual is serious about repaying the loan and that he has the income necessary to do this. Otherwise, you may put yourself in a situation where you will have to pay off another individual’s debt.

Make sure that your cosigner does not have large, standing debts from his past and that he has always repaid past loans.

If the borrower has no experience when it comes to managing money

When it comes to cosigning a loan, the most widely encountered scenario is that of parents helping their children borrow money. If your kids or other young family members have never taken out a loan or made financial decisions to help them build up their credit score, you should be cautious.

Depending on whether or not they have a stable source of income, it may be better to take out the money yourself, through a personal loan and then give it to them. This may not help them build up their score, but at least they won’t be stuck with bad credit.

Regardless of the situation, always make sure that whoever you cosign the loan with is able to manage both the money that he borrows, as well as his income. In other words, only help those who you know can actually repay the money on time.

If you intend to also take out a loan for yourself

Lastly, if you want to take out a loan, of any type, you should avoid cosigning. Keep in mind that the monthly payments for a loan that you cosign are still considered your responsibility. Any cosigned loan will affect your debt-to-income ratio. This may lower your chances of getting approved for other types of loans. You can cosign a loan, even if you want to borrow money personally, however, you should do the math and figure out how much your debt-to-income ratio will be affected.

You should also consider the fact that if your cosigner cannot repay the money, you may be left having to make his monthly payments, while also taking care of your personal debt. This can put a huge strain on your finances.

Conclusion

Generally speaking, you should only agree to cosign a loan with someone that you trust and know for at least a couple of years. Cosigning means that you will have to make the monthly payments for the loan if the one benefiter is unable, regardless of the reason. This makes it important to not only to trust the individual that you intend to help but also that you know his or her financial habits, especially when it comes to handling income and debt.

It is also a good idea to make contingency plans, in case the benefiter cannot repay the loan. This means doing the math to figure out how the monthly payments would fit in your budget. Failure to return the money will not only affect the benefiter but will also cause your credit score to drop and do long-term damage to your financial track record.

As a rule of thumb, only cosign loans that you know that you can pay without putting serious strain on your finances, and only do so if you’re certain that the benefiter will repay it.