We all know money doesn’t buy happiness, but some of life’s biggest and most exciting moments come with a price tag.
Whether you are embarking on a once-in-a-lifetime vacation, planning your dream wedding, or working toward financial freedom, a personal loan could be the resource you need to achieve your goal.
Understanding Personal Loans
A personal loan is a type of loan that can be used for a wide variety of purposes—from debt consolidation to home improvements to emergency expenses. Personal loans are an excellent option for borrowers who need access to a large amount of money quickly but don’t want to pay the high interest rates and fees associated with credit cards or cash advances.
How to Apply for a Personal Loan
Before applying for a personal loan, it’s important to assess your financial health.
This will increase your chances of being approved for a loan and give you insight into whether or not you can comfortably take on the additional debt.
A great place to start is checking your credit report for errors, determining your debt-to-income ratio, and using a credit assessment calculator to get a ballpark idea of your credit quality.
When you decide you are ready to move forward with a loan application, there are a few key steps to follow:
- Decide how much money to borrow. If you borrow too little, you may be unable to accomplish your goal. If you borrow too much, you will pay interest on money you didn’t need.
- Compare lenders. Lenders offer different interest rates, services, fees, and incentives. Shop around for the lender that best meets your needs.
- Get pre-qualified. Getting pre-qualified by multiple lenders generally won’t damage your credit score, and the effort can pay off in better rates, terms, and fees and lower monthly payments.
- Submit your application. Many lenders offer online loan applications, making the process more convenient and potentially reducing the time it takes to receive your loan.
Navigating Life's Major Events with Personal Loans
Many people think of personal loans as a source of quick cash to cover emergency expenses, pay an unexpected medical bill, or consolidate debt. However, they are also a helpful resource for financing life’s big events, such as a wedding, major home renovation, or the trip of a lifetime.
Without adequate funds, these events can be extremely stressful—or may not happen at all. A personal loan can alleviate the financial strain, allowing people to focus on the things that matter.
Tips for Smart Personal Loan Usage
A personal loan is a flexible, convenient option for financing large purchases or consolidating multiple lines of credit. However, it’s important to use your loan responsibly. Here are a few ways to maximize the benefits of your personal loan and avoid potential pitfalls.
Shop around for the best rate.
Comparing the rates of multiple lenders will help you pay less interest over the life of the loan.
Weigh up benefits versus cost.
It’s important to remember that a personal loan must be repaid with interest. Calculate whether the value of what the money will be spent on is greater than the cost of borrowing it.
Avoid overborrowing.
Before applying for a personal loan, determine how much you can afford to repay. Overborrowing can lead to financial strain, late payment penalties, and damage to your credit score.
Watch out for hidden fees and penalties.
When comparing lenders, be aware of hidden costs, such as origination fees or prepayment penalties. These unexpected additions can reduce the amount of principal you have available or add to the amount you owe.
Choosing the Right Path
There are many scenarios in which taking out a personal loan makes financial sense, including:
- High-interest debt consolidation
- Education investments
- Emergency cash flow
- Unexpected medical bills
- Wedding expenses
- Home improvements
However, before committing to a personal loan, it’s important to consider all your financing options. For example, a home equity loan might provide a lower interest rate for a kitchen remodel, and negotiating a payment plan with your medical provider might lower the cost of a large hospital bill.
The loan specialists at BNC National Bank can help you find the best personal loan options to finance life’s big—and often expensive—events. Speak with one of our team members to learn more.
