Ricochet News

Here’s what you need to know before taking out a personal loan

Jun 27, 2017
Here’s what you need to know before taking out a personal loan

We never know when financial trouble will come knocking on our door and sometimes when this happens, we aren’t always fully prepared for it.

If you find yourself in a situation where you are unable to pay for something important, then taking out a personal loan could be an option you choose.

So what is a personal loan? A personal loan is a loan that is unsecured. This means that you do not require collateral to borrow money. Instead, the lender will analyse your credit score and based on that, will determine if you are eligible for a personal loan.

When is the right time to take out a personal loan?People apply for personal loans for different reasons such as financing tertiary studies, paying for medical bills, renovating a home or paying for a wedding. Personal loans are best used when trying to finance important matters that you cannot afford. It would also be wise to ensure that the reason for the loan is an essential purchase or something you are doing to advance yourself.

What should you consider when taking out a personal loan? When you apply for a loan, ensure you can afford the monthly repayments and that you have a good credit record.

  • The interest rate: Be sure to check the interest rate as well as the initiation fee. Also be aware of the ongoing costs associated with the administration of your loan. . Most importantly be sure you know what your monthly instalment is and over what period. Certain banks offer fixed repayment instalments and flexible repayment methods for your convenience. So be sure to ask your bank about this. You need to be 100 per cent sure that you can afford the monthly payments because if you skip a payment, it could negatively affect your credit score.
  • Check your credit score: Your credit score will be the determining factor in the loan process. This will ultimately determine whether you receive your personal loan and the corresponding interest rates.  If you are unable to meet other monthly payments, it may affect your credit score. So always ensure you budget correctly and pay all your monthly payments on accounts to keep your score healthy.

When you take out a personal loan, always make sure you apply with a registered financial service provider and that you have credit life insurance to cover the loan should anything happen to you that would prevent you from making repayments.