Q: I need to get money together in a hurry. What can I do? Help!
A: There are times in your life when you need cash fast. It may be hospital bills, car trouble or crushing debt. A personal loan is for times like these. Personal loans range from $1,000 to more than $50,000, and are not secured with collateral. That means there’s no property that backs the value of the loan. Personal loans may seem attractive, but they do come with some downsides. Is a personal loan right for you? And if so, how do you go about getting one?
Let’s take a look at four critical questions to ask before getting a personal loan.
1) How’s my credit score?
Closely examine your credit score. You can check your credit score once a year at annualcreditreport.com. If your credit score is above average, finding a personal loan with a reasonable interest rate is easier. If your score is lower than you’d like, try a secured loan. Rates on secured loans are usually lower. You provide collateral as insurance if you can’t pay it back on time. In many cases, you can use your savings account as collateral, but be sure to pay on time!
A big downside of a personal loan is the higher interest rates. You can keep your interest rate down by limiting the amount you borrow, using a shorter repayment period or securing your loan with personal property. If none of these strategies can get the interest rate down to an affordable level, a personal loan may not be for you.
2) How do I apply?
The application process varies. Some take weeks, and some hours. Some have application fees, and some don’t. The interest rates and limitations on uses for the money vary as well.
You’ll always need a form of identification, usually a Social Security card or a state-issued ID. You’ll need to show proof of income, usually in the form of W-2 forms, bank statements or paycheck stubs. If you’re self-employed, income statements or another proof of payment can be used. If you’ve recently lost your job, be upfront. Otherwise, you may end up with more loan than you can afford. You’ll also need proof of address such as recent mail or the lease for the property.
3) What do I need to watch out for?
Scammers prey on desperation. Be careful. The classic phishing scam is when scammers pretend to be legitimate loan companies. You apply for that loan and give them all the information they need to steal your identity. Advance fee loan scammers trick you into paying a “loan fee” prior to receiving money, and then disappear.
4) Where do I go?
Always deal with a company you trust. Don’t fall for large final payments, early payment penalties or other unfavorable terms. Be wary of scammers.
YOUR TURN: Where do you go in times of trouble? If you’ve been through a financial emergency, how’d you keep it together? If you never have, what’s your secret? Let us know!