A personal loan is a loan you can use for nearly anything you want and isn't limited to home remodeling or buying a new car. You can use a personal loan to pay off medical bills, go on vacation, or invest in a new project. Just like any other loan, you should make sure you understand the interest rates involved and the terms of your loan, such as whether you have early payoff penalties or not. Here are 3 things you should do prior to securing personal loans so you can keep your finances in check.
Make a list of what you want the loan for
It can be very easy to get a large sum of money and spend it recklessly, which is something you don't want to do with money you have to pay back. Prior to getting a loan, make a specific list containing just what you want the loan for. If you will be using a loan for many things, itemize each priority based on its importance or how much money is needed. This can help you stay on track.
Better your credit
The lower your credit score the higher risk you become to lenders. You can still get a personal loan, but you will pay a higher interest rate as a result. Cleaning up your credit in the months prior to getting a loan is the best way to get the lowest interest rate possible and the highest loan amount. Pay down credit cards so they are well under your limits, pay off medical bills, and get a credit report so you can make sure you don't have any judgments or collections under your name. If you have many collections or delinquencies, you may want to talk to a financial lawyer about helping you reverse some of these red marks by working with creditors.
Make a payoff plan
Ask yourself how you plan on paying your personal loan off. Are you planning on working extra hours? Forgoing entertainment purchases? Are you going to be paying off a major expense so you can free up your income to pay for your loan? You don't want to get a personal loan if you have no idea how you are going to afford the monthly payments for several months or years. Talk to your accountant to see where you can cut corners in your budget so you can safely get the personal loan you want.