The fact is that for almost every person there comes a time where you might have to consider getting some kind of personal loan. It might be for something like going to college or buying a car, or it could be something a lot smaller. No matter what it is, there are some considerations you should make before applying for one.

The first thing you need to consider is why you need the loan.

Vi's Sub & Steak Palace (June 1979)
Creative Commons License amateur photography by michel via Compfight

For something like college you’re investing in your future so trying to get a personal loan to help you get a better education can make sense. It might not make sense if you don’t have any idea what it is you want to study, but if you know you want to go into a specific field and already have what it takes to succeed, and that’s a great investment in your life.

For something like a new refrigerator, even though it’s pretty crucial to have one, it’s probably better to put it on a credit card. That’s because it would be hard to get a personal loan for an item like that from a bank, although you might be able to get a finance plan from wherever you bought one from.

The second thing you need to do is figure out whether you really need a personal loan for what it is you’re hoping to do. For instance, I’m totally against payday loans because they try to convince people that its okay to take out a loan for $100 to pay for concert tickets and pay upwards of 300 to 400% interest after one week… unless you can’t pay it after a week and it begins to compound. Was it really worth that kind of debt just to go to a concert?

However, if you’re buying a car, then it might make sense to look into a personal loan. However, you have to be smart when you do this because what you’ll find is that car dealerships will often give you a better deal if you can either put some money down or have a car to trade in.

The third thing you need to look at is the interest rate you’re being asked to pay. Obviously the lower the better, but if the loan you’re looking to take out isn’t that high then paying a higher interest rate might not hurt you. And, in the case of cars, sometimes a higher interest rate can turn out to give you smaller payments; it’s tricky but if you check the link out above concerning cars you’ll see what I mean.

The fourth thing is how long you think it will take you to pay off your loan. That’s where interest rates come in because the higher the interest rate the more money you end up paying most of the time (look at the car link again). If you’re able to pay off your loan quickly, then interest rates basically mean nothing.

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