A small personal loan may seem like just the thing you need to pay off a few debts, do some work around the house, or pay for a vacation. Before signing the paperwork and getting your cash, though, there are a few questions that you need to answer for yourself. Continue reading to find out what they are.
Question #1: What is the interest scheme?
The interest scheme is more than just the rate, but it also pertains to how it is assessed and paid for. A best case scenario will be a low rate that compounds over time as opposed to all at once in the beginning, and that doesn't have any early payoff penalties. This gives you the option of paying off the loan early and lowering the amount of interest that you will pay.
Question #2: Do you have a payback plan?
The next question you need to answer is what is your payback plan? A wise choice is to aim for paying it back as soon as possible, which may mean doubling or even tripling payments. Take a few minutes to make up a post-loan household budget so you can ensure you can squeeze the payments, along with any over payments, comfortably into your normal budget.
Question #3: What is the plan for the loan money?
You also need to plan how you will spend the loan money. In many cases, the loan money is already earmarked to go to a specific thing, but sometimes you may have some left over. It's all too easy to waste this on dinners out or things you don't really need and only mildly want. Instead, make a plan for every penny, whether it is to spend it, save it, or turn around and pay it right back into the loan so you can avoid some interest payments.
Question #4: Do you understand the extras?
Many personal loans now come with extras, or "gimmicks." These can often be used in your best interest if you are prepared. The most common extra is to schedule direct debit payments. Check to see if you can spread your payment over a month – if your interest is assessed daily, then making partial payments each payday may lower the total amount you owe over the life of the loan. Some loans also offer low or no interest introductory periods, which you can take advantage of to pay off a chunk of the loan. Just read the fine print so you know exactly how to make the most of these gimmicks.
For more help, talk with a personal loan officer.