Getting a loan can be one of the most important decisions you make. On the one hand, a smart loan has the potential to set you up nicely for the future or get you through a financial rough patch. On the other hand, not understanding a loan before taking on its financial responsibilities can compound your conundrums all too quickly. Whether you’re looking into personal loans, bad credit loans, title loans, or any other type of loan, you’ll want to keep these four guiding principles in mind.
1. Short Versus Long-Term Loans Explained
One of the most important financial decisions you can make regarding loans is whether you want a short or long-term loan.
In the case of a short-term loan, you are almost certainly going to have to pay higher interest. These loans leave the borrowing party with less time in which to pay back the loan and less time for interest to accrue, which means banks make the interest rates higher to compensate.
Long-term loans, by contrast, typically feature lower interest rates, as the interest has a longer amount of time to accrue. That said, the longer timeframe for lending and repayment compared with smaller installments can make it easier for those who cannot afford to pay large sums now, but can save and do so in the future.
Many bad credit loans are short-term, while loans for things such as houses are often long-term.
2. Set Specific Lending Purposes
One of the biggest mistakes people make when getting a loan is failing to have a concrete purpose in mind. You may think you have an idea as to what you want a loan for – college, car payments, your mortgage, and so on – but without a more concrete plan, you might overborrow and overpay.
Before taking out a loan, you want to make sure you have already answered several key concrete questions, including:
- What specific purchase or lifestyle cause is necessitating this loan, and is it worth it?
- When can you expect to pay back the loan?
- Is a short or long-term loan best?
- Do you already have a plan to pay back the loan?
- Do you already possess ample means to pay back the loan?
3. Your Credit Score Matters
When seeking a loan, your credit score is hugely important. A good credit score opens doors, while a bad one can seemingly shut and bolt them forever.
However, that’s not quite true. Options such as title loans, when utilized responsibly, can allow those with bad credit to get the loans they need when they really need them.
That said, you want to do everything you can to obtain good credit and improve your score whenever possible. Always pay back loans on time and ask your bank how you can boost your credit score.
4. Banks Versus Online Outlets
Finally, you’ll want to determine which lending option is better for you, banks or online outlets.
Banks are more traditional and often offer a wider range of options with trained representatives. However, they are also far more selective about those to whom they choose to give loans. By contrast, online outlets offer options that traditional banks often don’t, including bad credit loans. That said, you should always make sure an online lender is legitimate before entrusting them with your personal and financial information.
Armed with the facts, you can seek loans with the confidence and insight you need.