Personal debt can either be a way to establish credit for future projects and if not properly managed, can be the worst nightmare for a consumer. In fact, taking on debt is more than about just borrowing money. In many cases, personal debt assesses our creditworthiness, and in a world where financial acuity is increasingly important in establishing oneself, your creditworthiness is like gold.
Not to say our creditworthiness determines our value, but it can really put dimmers on a bright future if not properly managed. Car loans, and even bigger, home loans are some of the reasons your creditworthiness can land you a great deal. However, much of establishing credit begins with smaller loans like a personal loan by Latitude, which can be obtained through online institutions, and through any conventional loan program at a financial institution.
Continue reading to learn more about what you should know before taking out a personal loan.
Knowing The Benefits Of The Personal Loan
There are many benefits to taking out a personal loan. One of them is, if your application is approved, you determine the amount borrowed, which is not the case when compared with credit card rates. Another benefit to using the personal loan to fund a project is that the interest rate is also lower than a standard credit card as well. The benefit can also be found in being able to establish credit.
However, there are caveats to taking out personal loans. For one, while they are cheaper than most credit cards, the interest rate on personal loans are typically higher than on any other type of loan, which means you end up paying more for the project than necessary. Finally, with the glut of financing options out there, consumers can run into sub-prime lenders who charge usury rates, especially if your finances are not in the best of shape.
Knowing The Additional Costs
Many loans require that borrowers pay additional costs associated with opening the account, also called origination fees. Then, there are fees that might be assessed on any balances at the end of the month, in addition to interest. Finally, while it might seem strange to charge someone for paying off the loan early, early termination fees can also increase the amount of the loan. Think for a minute that you are in the worst credit universe ever having to pay on all of these fees plus interest. These additional costs can make borrowing very expensive.
Knowing Your Own Financial Circumstances
A large part of applying for debt is related to your ability to pay for the loan, so your credit history and income will determine whether your loan application is approved and what the interest rate is, which will ultimately determine your payment. First, your credit file is extremely important in giving prospective financing companies a glimpse at your records and your spending habits. Your TRW or credit file explains to financing companies the debts you have incurred and includes your payment record, including late payments and charge-offs or unpaid debts. Then, these financing company looks at your ability to pay on existing debts and the new account based on your income. This FICA score determines whether you will be able to handle the new loan with your existing debts.
Doing The Research
The best way to arm yourself against falling prey to predatory lenders is to research the various loan programs online. These programs will give you information related to interest rates and loan terms, which can make borrowing uncomplicated if understood. While there are a lot of good deals today, it is easy to find yourself paying into a money pit that can derail any financial plans.