Every so often, life shows you how unpredictable it can be. You have a sudden expense you weren’t prepared for. You need a lot of money as soon as possible.
Is a personal loan the answer you need? Or should you look for a no credit check loan? How can you make sure you’re making the best choice?
The answers to these questions are different for everyone. And you’ll find yours in the guide below.
There are 9 essential personal questions to ask before taking out a personal loan or payday loan no credit check. Ask these questions to find out if a personal loan is right for you.
1. Is This Really Necessary?
Why exactly are you considering borrowing money? What goals are you hoping to achieve?
Do you really need this money now? Or is this decision based on convenience or impatience?
The is arguably the most important line of inquiry on this list. When you’re in true need of help, a personal loan can be the financial life preserver that rescues you from debt.
But borrowing money when it’s neither helpful nor necessary is known for achieving the opposite. Careless borrowing is a fast-track into debt.
It’s why the average American household has almost $7,000 in credit card debt, and why 9% of them say they’ll never be free of it.
If it’s not essential to your finances that you take out a loan, don’t. It’s better to save up instead.
2. How Much Would I Need to Borrow?
This question may seem way too obvious. And that’s why so many borrowers underestimate it and rush through their calculations.
Know this: borrowing an amount inappropriate for your needs causes expensive problems you can’t fix later.
If you don’t borrow enough, you’ll end up with a monthly loan payment on top of the remaining expense the loan was supposed to cover. This can land you in a worse financial situation than you started with.
If you borrow too much, you could pay hundreds more in interest from the extra time it takes you to pay it off. In this way, you may pay more interest on your debt consolidation loan than if you had paid the debt without it.
Whatever your needs for this bad credit loan guaranteed approval, carefully consider the exact amount you need. When consolidating debt, add up all your debts and borrow only the exact amount needed.
If the loan is for a home improvement project, finalize your budget before you borrow. Get several cost estimates including fees. Determine what you will be spending as precisely as possible and borrow that amount.
3. What Monthly Payment Can I Afford?
An unaffordable monthly payment is another way your personal loan online can do more harm than good.
Avoid this by taking a comprehensive inventory of your income and expenses. Be sure to take into account expenses that don’t occur every month, like automotive maintenance or yearly subscription renewals. If you don’t have an emergency fund saved up, you’ll also want to overestimate for unexpected expenses, like house flooding.
After considering all this, decide on a monthly payment that’s well within your means. You can always pay above the monthly payment if you are able. It’s better than being stuck with one you can’t afford.
4. How Long Will I Be Paying It Off?
Keep in mind that the monthly payment you decide on affects how long it will take to pay off the loan. The smaller your monthly payment, the longer your loan period is. The longer the loan period, the more interest you pay overall.
The ideal length, then, depends on what you’re hoping to achieve with the loan.
Are you consolidating debt to save on interest? If so, it won’t help you to lower your interest rate if the loan period is too long. The extra months could cost you more interest than you would have paid without the loan.
But if your goal is to lower your unaffordable monthly debt payments, it might be worth it to you to pay more interest in the long-run. It’s better than filing for bankruptcy.
Use a loan calculator to find the ideal balance between loan amount, loan length, and monthly payment.
5. How High Is the Interest Rate?
Interest rates for personal loans vary between lenders an are based on several factors. It’s essentially based on how trustworthy of a borrower the lender thinks you are.
Lenders will consider your requested loan amount and length, your credit and employment history, and other factors to calculate the risk of lending to you. The more likely it seems that you’ll be able to pay it off, the less risk there is in lending to you.
A lower risk earns you a lower interest rate. But a high-risk applicant will see higher interest rates or be denied outright. If this is the case with you, one loan you will certainly qualify for is a payday loan online. While the interest rates will be extremely high, they can help fill the gap for a short period of time.
6. Will I Qualify for the Loan I Need With My Credit?
Your credit is basically a general score of how trustworthy you are at borrowing.
Borrowing often and always paying on time raises your credit score. Defaulting on a loan or having late/overdue payments lowers your credit score. If you’ve never borrowed at all, your credit is 0.
So how high of a credit score do you need for a personal loan? That depends on the type of personal loan (described in the next section).
But in general, most lenders won’t approve an unsecured personal loan if your credit is under 580. If you are at this level, it’s best to look for personal loans no credit check, as these lenders will focus more on your income and ability to repay than your actual credit score.
If it’s between 580 and 680, you shouldn’t have too much trouble finding a lender who will approve.
A credit score of 680 or higher is in the good-to-excellent range. In this range, you’re unlikely to be denied unless you have a short employment history.
7. Which Type of Personal Loan is Best for Me?
If you do have great credit, you’ll most likely get the best interest rates from an unsecured, fixed-rate personal installment loan. If it’s a fixed rate loan, you’ll lock in the low interest rate for the life of the loan.
Don’t let a low introductory rate seduce you into getting a variable-rate loan unless you’re confident you can pay it off during the introductory rate. Otherwise, the lender will likely increase the interest later, costing you more in the end.
If your credit score’s not so great, there are such things as bad credit loans. For example, you’ll have a much better chance of approval applying for a secured personal loan. This is where the loan is secured against some valuable collateral.
Also, try peer-to-peer lenders. They usually have far more lenient eligibility requirements than traditional lenders.
8. Should I Have a Cosigner?
A co-signer is another way to help your chances of approval if you have bad credit. Not all lenders allow this. But it may get you approved on account of the co-signer’s high credit score.
But beware. By having someone co-sign, you’re putting them at risk.
They are held legally responsible with you if you can’t pay. If you default, it will damage their credit, and likely your relationship with your co-signer.
9. What Fees Will I Pay?
Be careful to research additional fees before you sign. A low interest rate may not be worth it in light of large fees.
Loans often start with an origination fee of 1-8% of the loan amount. Add this to the interest rate and make sure you’re still getting the best deal. Also, find out if the loan amount covers the fee (which adds to your total interest amount) or if it’s coming out of pocket.
Personal Questions to Ask When Taking Out a Loan
If you’re considering a personal loan, you’ve got some personal questions to ask yourself first. Use this list to find your answers before you apply.
For more personal loan answers, read What Type of Personal Loan Do You Need? Here are some other articles you might find helpful: