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5 Things You Need To Know About Personal Loans

Let’s say you want to buy some new furniture, a new smart TV and an iPhone. You’ve already decided on a budget to spend and all of these, but you haven’t got all the money. The best solution in this case is a personal loan. Usually you pay the money back in monthly installments over a period of two to five years and you don’t need a collateral.

Personal loans are unsecured loans like those offered at Adherents Loans. This means the loan is supported only by your creditworthiness and you won’t need any type of collateral. The main advantage of a personal loan is that it can be used for almost any reason, from an unexpected medical’s bill to a much sought-after vacation, or house renovation. So, it seems like a very good way to borrow money. However, there are some things you should know first.

  1. The interest for a personal loan can vary

The interest rate for a personal loan is based on the annual percentage rate, aka APR. The APR can vary from one year to the other. It is expressed as a percentage and it will help you make a decision on the lender. In June 2019, the APR was 9.41%. However, your creditworthiness can influence this number.

Your creditworthiness is your “borrower CV”. The creditors will be able to look at your repayment history, credit score and even number of liabilities. They could also see your balances, the credit limits, the credit balance of your current accounts and even if you’ve had due amounts of any kind. So, it helps to build a “good borrower” reputation in time, because banks will know.

  • Make sure you really need a personal loan

You need to make sure that a personal loan is right for you. At a first glance, it might look like the less complicated idea. However, for certain types of needs, like say a car, an auto loan might provide for a lower interest rate and an overall better idea. However, these types of loans also come with other strings attached. For example, an auto loan needs to be secured by the very car you want to buy.

Moreover, there are loan solutions, like a 0% introductory APR credit card which can be a better idea if you are sure you can pay off the money before the 0% rate expires. All in all, there are a lot of things to consider before choosing a personal loan, so it is not such an easy choice to make after all.

  • Don’t borrow more than you need

Always keep in mind that you’re going to pay interest for the money you borrow. It’s easy to say “I’m going to borrow extra, just in case”. However, you’re going to pay interest for that “extra”, so try to make real calculations before deciding on the amount of money you borrow.

What is more, you also need to make sure that you can pay them back.  Overextending yourself financially is a big mistake, but you probably already know that, so let’s move on.

  • Check your credit score before applying for a personal loan

You can make what is called a soft inquiry at the main credit reporting agencies and will get back your updated credit report. If the lender makes what’s known as a “hard inquiry”, that could affect your overall creditworthiness. So, it’s better you check your credit score first, then proceed to applying for the personal loan.

Credit score is really important for your loan because the higher the score, the better the interest rate. For example, a person with a 760 or higher credit score, could borrow an average of $20,027, with an interest rate of 9.96%. In contrast to this, a person with a lower credit score of only 640, could borrow about $11,000 with an interest rate of 24.49%.

These numbers are from January 2020 and as you can see, the difference in interest rate is quite huge. So, keep an eye on your credit score and make soft inquiries about it before you want to take a personal loan.

  • Always check the details of your personal loan

After getting prequalified for your loan, make sure you read all the details in your preapproval letter. Know the fees and penalties for late or missed payments. See if the interest is fixed or variable and if you can decide between these two. In case the personal loan needs to be secured, see what the collateral might be.

You might also be able to pay your loan off early, but some lenders might have a “penalty” for that. See if that is the case. Once you know all the details, you can apply for a loan. That is the time when you need to have all the required documents in order and submit your application.

5 Life Decisions That Will Have a Serious Impact on Your Finances

The fact that anyone makes mistakes is a reality that we have to live with, however, the seriousness of those errors can sometimes change the course of our lives. This is especially true when it comes to the financial decisions that you make, mainly because most of these have permanent repercussions or are difficult to repair.

This having been said, while smaller mistakes such as being late with your bank payments can be repaired over time, even these can quickly add up and cause the banks to stop trusting you permanently, lowering your credit score.

Below you will find the 5 life decisions that may seriously harm your financial status.

  1. Cosigning a loan

One of the most damaging things that you can do when it comes to your financial records is cosigning a loan with a person that you do not fully trust. Keep in mind that when you cosign a loan you agree to vouch for a person who either does not qualify on their own (they may not have the required monthly income or any source of income at all), or they may have a bad credit score. Signing one of these documents places a lot of responsibility on your shoulders:

  • If the one that you cosign is late with a monthly payment, it is your responsibility to pay it;
  • In the case that the cosigner cannot finish repaying the loan, you will have to do it for him as if you borrowed the money;
  • If anything happens, your credit score will also be affected, considering that you agreed to cosign the same agreement with the bank;
  • Getting a criminal record

There are many disadvantages to having a criminal record, however, one of the biggest ones is the fact that banks will be less likely to trust you. This includes disqualification from employment and security clearances and, in some cases, you may even not be allowed to get financial aid for education.

The number and severity of restrictions that you will face depend on what is written on your criminal record. Banks and credit companies usually avoid doing any sort of business with individuals who have embezzled money or who have tried to cheat their lenders in any shape or form.

Keep in mind that even after your criminal record is no longer an issue, your financial records will remain marked, damaging your trustworthiness permanently.

  • Ignoring the current instability of the economy

Hoping for the best is not always useful, especially when it comes to your financial life. Keep an eye on how the economy changes over time and learn to predict how it will affect your ability to repay your loans. If you make a habit out of borrowing money over and over again, ignoring the fact that you might lose your job before paying it back, you’re putting yourself on the chopping block, waiting to see if the ax will fall or not.

  • Merging finances without marrying

Fewer and fewer people get married nowadays. Unfortunately, despite the fact that they do not legally merge their lives, they do their finances. This often creates a whole slew of problems, mainly when money-related disagreements appear, or when individuals break up.

The law can offer a large degree of financial protection to people who get a divorce, however, if you live together, merge your finances, but don’t get married, things will get messy. Particularly when it comes to splitting the common assets that you may have both paid for.

Attorneys can usually help you protect the property that you’ve paid for in a larger part, only if you are married and get a divorce.

  • Pay a success task without having your money properly budgeted

Individuals that belong to some communities feel obligated to give something back when they find success in life. Unfortunately, this financial behavior can create a lot of problems, especially if you are at a point where you do not have your monthly expenses completely covered, along with your retirement fund, and an emergency budget.

The majority of people who feel obligated to pay a success task often end up going into the funds that they were saving up for other purposes, some important, just to avoid the feeling of guilt. Keep in mind that paying a success task is only useful to the community if you continue to be successful.

Conclusion

These are the main issues that people are having when it comes to their financial life. Learn to pay attention to how the economy changes over time and how it affects you. Furthermore, try to be conservative with how you spend your money.

Following the law and using it to protect your assets will always ensure that you have something to fall back on.