If you are going to take out a personal loan, there are several factors that you should keep in mind before applying for a personal loan. While personal loans unlike many other loan products are easy to apply for, and for many people are easy to obtain, taking out a loan is a serious endeavor, and could affect for your credit and your finances.
Taking out a loan in and off itself will not negatively effect your credit, at least if you pay back the loan properly, making all of your payments on time. Personal loans are like any other loan when it comes to your credit standing, it is all about your payment history. Where you stand the risk of ruining your credit is if you start to miss payments, are late on payments or quit paying your loan altogether. So it is not the loan in and of itself that is the risk, but rather any factors that could prevent you from honoring your contractual obligation to repay your loan.
Here is several things to ask yourself before applying for a loan:
Are you only applying for the amount you need?
Every loan has interest, so you should only aim for an amount you actually need, without going over. Lenders often try to get you to apply for more than you need, as its is much more profit for them to do so. Yet the more you borrow the higher the risk is to you that you will run into financial problems. Often times people try to justify amounts higher than they need, so try to think about your loan amount with logic and without emotional response.
Do you really need that loan?
While we love personal loans, and we think personal loans when used correctly can financially empower cash strapped people, we also believe that personal loans should only be used when absolutely needed. If you are dealing with an unexpected auto repair, an emergency or a medical need than chances are yes you need that personal loan. Yet if you are taking out a loan to get the latest X-box and 15 new games then you might want to reevaluate whether or not taking out a loan is the ideal solution here. Loans are serious endeavors, and should not be taken out lightly. Any number of other serious things can happen while you have this loan out, such as losing your job, accidents, a lay off or other factors that can lower your income, and your ability to repay your loan.
Is it an emergency?
This is directly related to the above question. Emergencies are the best time to make use of a loan. For anything else you should really take some time to mull it over. If for example you are taking out a loan to help cover the household budget, a loan will not help you, in fact it will just make matters worse. For everyday expenses you should be able to cover that with just your normal everyday income. Instead you should work on either lowering your expenses, or raising your income up. Sadly in the U.S 69 percent of personal loan users take out their loans to cover everyday living expenses.
