Taking a personal loan in the US is relatively easier due to online lenders than it was some years ago. Statistics show that in the US, people have borrowed more than $150 million as personal loans. That shows how people have resolved to take personal loans in the US.
A personal loan is usually unsecured, meaning you don’t need collateral to take the loan. However, your credit score determines how much loan amount you can get.
This blog explains things you should consider before taking out a personal loan in the US. Keep reading to learn more about personal loans.
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What is a Personal Loan?
A personal loan in the US is any kind of borrowing that ranges from $50 to $100,000. The amount of loan you get depends on whether you have a poor or excellent credit score.
In addition, the annual percentage rate you get also depends on your credit score. For instance, those with excellent scores get lower rates, and the reverse is true.
If not careful, a personal loan can lead you to endless debts and cause you to be dependent on loans. However, a personal loan can help you actualize big financial projects, including long-term investments.
Personal loans are different from car or mortgage loans. With personal loans, you won’t need a loan security before approval.
However, you can jeopardize your credit score if you skip several instalments. Before taking out a personal loan, you should consider the factors in this blog.
Factors to Consider When Taking a Personal Loan in the US
There is nothing to lie about your debt-income ratio. Your income should be high enough to accommodate personal debts and living expenses.
1. Your income potential
If you have multiple income streams, which is advisable, it will be simpler to pay off your personal loan. As a result, you’ll continue building your credit score for future borrowing.
Let’s agree that some projects are good with a personal loan. And you can achieve your financial goals by properly using a personal loan.
2. Your credit score
Indeed, don’t expect lower interest rates for a personal loan with a poor credit score. Instead, you can first take out credit-builder loans to help build your credit score.
However, some lenders accept lending to people with bad credit scores. But the rates are relatively high. For instance, some lenders charge rates starting from 5.99% to 35.99%. People with excellent credit scores get lower rates, and those with lousy credit get high rates.
The good thing with personal loans in the US is that you can still build your credit once you honor the repayment plan. Being financially responsible is an excellent habit to help you manage your finances.
3. The Annual Percentage Rate
What is the minimum APR you can get? You can first research all potential lenders willing to offer you a personal loan. Ensure you compare the lenders to settle for the cheapest APR.
Remember that a lower APR determines the total loan amount (principal +interest) you’ll pay and for how long. In addition, cheap APR reduces the overall loan payment, reducing the monthly installments.
4. How long can you pay the loan?
One thing you should know about loan repayment terms is that the longer it is, the more interest you pay and the smaller the installments.
On the other hand, if the repayment term is short, the installments will be huge. Therefore, sign up for shorter repayment if you have high-income potential. And you’ll manage to save a chunk of money.
5. What costs are involved?
Some lenders charge loan processing fees or some kind of downpayment. You should know how much you should spend before getting a personal loan in the US.
Some lenders also charge early repayment and late repayment fees.
Researching all possible costs ensures you are prepared for anything that comes up during the loan application.
6. Why do you need the loan?
Anyone can fall into a financial struggle. But that doesn’t mean you run to take a personal loan for any little problem you have. You can consider other ways, like a payday loan, though they are expensive or make more money.
Always plan before taking out a personal loan. If you take a loan without prior planning, you may shift to do unnecessary things which could have waited for income. The best time to take a loan is when you have a big financial project to accomplish.
7. How much do you need?
The loan amount you take determines the years you’ll pay it. Not only that but also the installments and the overall interest for the loan.
It’s advisable to take the exact amount you need to use. This idea will eliminate the temptation of misusing money.
8. Check eligibility
Check the eligibility criteria of your preferred lender. This will help reduce the chances of a hard credit check, which can harm your credit score.
However, lenders usually conduct a soft
check to see whether you qualify for their loans. Once you qualify, they again do a hard check before approving your loan. The hard check appears on your credit history.
What are the Requirements for Taking a Personal Loan in the US?
There is a general eligibility criterion for personal loans in the US. Before applying for a personal loan, ensure you meet the following.
- You must have a valid state-issued identity document
- If you prefer online lenders, have your email address ready and functional
- You must have a stable income
- Your credit score should be good( some lenders accept bad credit scores
- A valid street address
- A low debt-to-income ratio
Factors to Consider When Taking a Personal Loan in the US: Frequently Asked Questions
- What are the main factors when taking a personal loan?
Your income level and credit history are the main things that determine the loan amount you get. They also determine the APR and the repayment terms.
- What are the 5 C’s in loans?
- Capacity
- Capital (in case of a business loan)
- Collateral
- Conditions
- Character
- What should I know before taking a personal loan?
The most important thing to know is that you will ruin your credit score if you don’t repay the loan. Therefore, be disciplined enough to honor the repayment policy. In addition, to avoid struggles, add more ways to make money.
What Next?
Now that you know the factors to consider when taking out a personal loan, go ahead and borrow responsibly. Remember that you can build wealth through responsible borrowing and top-notch money management skills.
Alternatively, you can build wealth by making money while at home. Always strive to build a reliable financial life.
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