Sometimes, going through adult life, you may be faced with an unexpected large bill that you don’t have the means to pay off right now, such as a medical emergency. Or it may be that you need to borrow some money to make something like your dream wedding a reality.
During these situations, you might find yourself considering a personal loan. A personal loan is a loan given to you by a lending entity that you will then pay back monthly along with an interest premium. Personal loans are also considered unsecured loans since no collateral is required.
At the core of it, taking out a personal loan means that you are putting yourself in debt. So, you need to have fully understood the premise of it before signing your name on that piece of paper. Neil Thompson, the head of product and customer value proposition at African Bank gives you some tips about how you can be smart about getting a personal loan. Keep reading to find out what they are!
Shop Around for the Best Deals
Your first instinct is to probably ask the bank that your account is held in for a personal loan, but don’t be so hasty to make a decision. While it’s true that some banks have preferential rates for loans for their account holders, it’s also true that some other banks may offer you an even lower rate. Don’t limit your options by neglecting to research all that is available.
Consider the True Cost
When doing your research of the lending entities you are interested in, don’t get bamboozled by the attractive offers that they seem to advertise. Take the time to dig deep and truly understand the cost of the loan. For instance, while the interest rate is the major thing that everyone looks at, you should also consider things like payment due dates, late charges, and other potential hidden charges. These can actually end up making the deal way worse than it may seem.
Check Your Eligibility
Before applying for any loans, there are two things you need to check first: your credit rating and your eligibility to be approved for a loan. Applying only for the loans that you meet the conditions for can help you save time and the disappointment of being rejected. Make sure to read the fine print, since different lenders have different requirements as to who they are willing to lend to. Your credit rating also dictates the kind of deals that lenders would be comfortable offering to you, so knowing that upfront is also important.
Send out Limited Applications
Don’t send out applications to every lending organization you can think of. You probably won’t qualify for most of them and it will only end up making you seem desperate. Ultimately, it will make you a less desirable client even to lenders whose criteria you do meet. The best thing to do is send out a limited number of applications and only to the place whose requirements you meet.
Early Clearing Charges
The way that a bank earns from lending money is by collecting the interest payments made per month, so ideally, they would prefer you to take longer to pay back your loan rather than soon. In fact, a lot of banks literally penalize you for paying the loan back too soon. These charges are called Early Repayment Charges of ERC.
This is agreed upon at the time the loan is issued, so you can look for a bank that doesn’t apply ERC charges, or at least know how much you’d be liable to pay if you plan on paying it back soon.
Borrow More
It may seem silly to suggest borrowing more money than you need, but you could actually end up saving more money in the long run. This is because larger loans come with lower interest rates than smaller loans. It doesn’t even have to be anything drastic; simply borrowing an extra $500 can help bump you over to a bracket with a more attractive interest rate.
