Personal Loans: What to Know Before You Apply

frugal finances personal loans tips before you apply money lender

There are plenty of reasons to need a personal loan at some point throughout our lives. If you're in the process of shopping around for one right now, you're in luck. The good news is that you've come to the right place by reading this article. 

The thing is, it can be easy to find personal loan options available these days. Still, you don't want to make the mistake of choosing one before you do plenty of research. 

Consider how many personal loan options are out there. In the year 2018 alone, the amount granted to personal loans throughout the United State totaled a record of $138 billion total. It's clear that many others just like you have taken advantage of loans to improve their financial situations.

Before you apply for a personal loan, make sure you know what you're getting into. Check out the rest of this article for more details. 

Consider Why You Even Want a Personal Loan

As mentioned above, there are plenty of valid reasons to seek a personal loan. Perhaps life circumstances have recently made it difficult for you to keep up with your bills. 

It might be the case, though, that you're looking for a personal loan to consolidate the rest of your existing debt. If that's the case, know that you're not alone. It's smart to consider this option as it, for the most part, decreases the amount of interest you have to pay every month. 

A Personal Loan Will Affect Your Credit Score

Know that even if this loan is for consolidating the rest of your debt, it'll still detract from your credit score. That credit score, whether we like it or not, affects so much throughout our lives. 

Our credit score is impacted by cars we buy or mortgages we take out. It even gets affected by loyalty credit cards from your favorite clothing brands. 

Plus, whatever your credit score is, it'll impact whether you can get a personal loan in the first place. The fortunate news, then, is that there are a lot of times personal loan options that approve borrowers even with the worst of credit. It's up to you, though, to do the research and make sure investing in a loan with poor credit is worth your while. 

Before You Apply, Review Your Monthly Budget

There's no exact science to consider when it comes to applying for a personal loan. You'll have to take the time and decide for yourself whether doing so is in your best interest. 

One smart practice to go through before even applying is to review your monthly budget. How much of a monthly repayment can you truly afford? Do you have any other debt that might be paid off soon, lowering your overall monthly expenses?

Answering these questions before an actual loan application might save you some headaches in the long run. You deserve to know your exact financial circumstances before putting them under even more stress.

Applying for a Personal Loan Counts Against Your Credit

Not only will having the loan affect your credit score, by the way. Applying for them often impacts that number, too. 

When you apply for any credit, it shows up on your credit report as a "hard inquiry." Too many hard inquiries over an extended period of time can have negative effects on the credit score. 

Sometimes, you can find personal loans that offer a "preapproval" determination. If that's the case, you're safe from it impacting your credit score. Preapproval isn't an official acceptance. Still, it's considered a "soft inquiry" and can at least give you an idea of whether the lender would approve someone in your financial situation. 

That's why it's important to apply for the minimum number of personal loans you're interested in. Read more in our Loan section about options for instant approval to help safeguard your credit score from a ton of hard inquiries. 

Remember To Check for Prepayment Penalties

It sounds like a great idea to pay off your loan as soon as possible, right? Well, don't forget to check with the loaner regarding prepayment penalties. 

The thing is, credit lenders make money off of interest paid over the course of your repayment plan. If you pay it off too early (in their mind), they miss out on some profits. That's why these penalties exist, and it's definitely something for you to consider when applying for a personal loan.

Don't Be Afraid to Seek Guidance

Remember, there's nothing wrong with asking your trusted friends or family members for advice. When it comes to personal loan financing, it's a good idea to get all of the information you can.

You don't have to share all of your financial troubles to do so, either. Just talk to them about their experiences with applying for loans and what advice they'd give you. 

Continue Investing in the Security of Your Financial Future

At this point in the article, you should be a little more prepared before you apply for a personal loan. It's important that you have a solid understanding of the ins and outs of the industry before investing in it. After all, it's worth taking your financial security seriously. 

It's an unfortunate truth that many people get in over their heads when it comes to personal loans. Interest rates can be difficult to navigate for those who are unfamiliar with reading the fine print. Before you sign anything, make sure you read all the fine print. 

In addition to applying for a personal loan, don't forget that there may be other frugal strategies to consider. Make sure you have proper savings that you're growing, for one thing. Plus, don't be afraid to ask friends or family members for help during those difficult periods in life. 

At the end of the day, you deserve to have the peace of mind that comes from knowing your financial situation is stable. That's why we gather the best guidance concerning the financial practices of the day. We encourage you to browse through the rest of our blog for more expert advice on frugal finances and money management.

New Frugal Finance Blog Posts & Articles