It is a common dilemma for everyone to find themselves strapped for cash coming from different reasons like an emergency happened, spending on a whim or just wanting to buy that new Lamborghini, no matter what income bracket they belong to. Some resolve to taking portions of their savings to get back on track while others opt to apply for a personal loan that may help close the budget gap.
But what is a personal loan?
Personal loans are known as “unsecured” debt because they are not backed by collateral unlike other types of loans. With this, lenders or credit institution will use as a basis the credit score to determine a person’s ability to repay the loan with added interest rate out from the applicant’s personal income. Options for repayment can be through lump-sum or fixed amount installments over a fixed term.
This may sound achievable especially when one is earning above minimum wage but remember that personal loan must be settled in a fixed amount of time and rate otherwise extra fees might incur or worst the lender could take the person to court and sue for breaching an agreement. The keyword here is paying “on time” because being too early or late both has its cons.
The applicant’s good credit score is the only ticket to getting that big YES from a list of licensed moneylenders. A credit score is based on, among other things, a person’s past credit history and is numerically represented between 300 and 850. This means that the higher the number (or score), the more financially trustworthy a person is considered to be not to mention the advantage of saving on interest rates. However, for some borrowers with credit issues, a personal loan may carry high-interest rates with them. Deemed as a downside, because having a high-interest rate could lead to large monthly payments which can become unaffordable and will affect greatly one’s credit score in case late or missed payments will happen.
Finally, having all these basic concepts in mind, an applicant should just be mindful of one thing and that is to practice good credit habits to make sure that the credit score is the best it can be.