Personal loans have become commonplace in society in the past generation or two and are used by people to finance a whole host of purchases or financial manipulations. Personal loans are taken to buy cars, finance home improvements, put children through further education or even to pay off such as credit card debts which are attracting a far higher rate of interest. The purposes of taking personal loans are therefore many but in order to finance oneself effectively with a personal loan, there are several precautionary steps which must be followed.
The most common reason for anyone taking out a personal loan is quite simply that they may purchase today what they would otherwise have to save towards for tomorrow. Instead of putting money by each week or month towards making a purchase, they borrow the money from a lender, make their purchase almost immediately and use what would otherwise have been their savings contributions to make the monthly loan repayments.
Prior to applying for a personal loan, the potential applicant should shop around to ensure that they get the best deal on same. They should examine such as different interest rates, repayment periods and repayment terms for such as early repayment clauses and/or penalties. They should also consider their ability to repay the loan and know that taking a personal loan and having to make monthly repayments is not akin to developing a savings plan, where a payment could be skipped in any month of particular hardship.
When considering a personal loan, one should determine precisely how much of a loan is required for the desired purpose. It may be tempting to add a little extra on top for some short term extra spending money but this is a foolhardy practise as it will not only increase the monthly repayments on the loan but the overall interest repaid in the longer term. This is not to say that a small amount could not be added to the loan principal to repay such as an outstanding credit card balance, which is attracting a far higher rate of interest. Consolidation in this sense may very well prove to be an excellent idea.
When the loan funds have been released, they should immediately be used to finance that for which they were obtained. This may not be a difficult rule to adhere to when purchasing such as a car as the likelihood is that one will take the funds in one hand and pass them over again immediately with the other. When, however, one obtains a personal loan for such as credit card debt consolidation, there are temptations which any of us may well succumb to.
Personal loans to repay credit card debt should be used for this purpose and this purpose only. It is all too tempting to pay off only the bulk of the debt and retain a little for other day to day spending. This is a slippery road to financial difficulty, however, as the individual will then find themselves making the loan repayment as well as part of the old credit card payments. The best principle here is to clear the cards in full and endeavour to the best of their ability not to allow it to mount up again. Cutting the cards up and destroying them is the favoured option.
Personal loans, if properly thought out and administered, are an excellent way to fund big spending in day to day life. The potential pitfalls, however, should be recognised and guarded against in order to eliminate long term debt problems to the best of the applicant’s ability.