Do you need a personal loan in times of crisis? Questions to ask yourself
Over the past year, Congress has approved several coronavirus relief funding bills to help millions of Americans stay afloat. In March 2020, Congress passed the CARES Act, a $ 2.2 trillion coronavirus stimulus package help American workers and businesses facing the economic crisis. The law also included a moratorium on federal student loan payments. Former President Trump subsequently signed a second coronavirus relief bill for 900 billion dollars and Congress approved an additional $ 1.9 trillion relief bill on March 10.
Despite the efforts of the government, many people still need additional financial assistance to pay their bills and are considering taking out a personal loan. However, before taking out a personal loan, do your research and ask yourself these five questions.
1. Is it a good idea to take out a personal loan?
You never know when you’ll be hit by an unexpected bill, but when it does, it’s good to know your options. If you don’t have an emergency fund in place, a personal loan can help cover rent, utilities, and other bills. You might even be able to reduce your financial expenses each month by consolidating your debts into one lower payment.
Personal loans often come with lower interest rates and flexible repayment terms, making them an attractive alternative to credit cards. You can comparison store and find personal loans with interest rates as low as 3.99% at Credible.
In addition, the repayment terms for personal loans generally vary from one to six years. With a good credit score, you can find lower interest rates and longer payment terms that can lower your payment and give you time to regain your financial health.
2. Will I be eligible for a personal loan?
Many lenders are responding to the economic downturn by demanding higher incomes and credit scores from potential borrowers. Since most personal loans are unsecured by guarantee, your loan approval will depend on your credit score, payment history and your debt / income (DTI), among other considerations.
If your credit rating is good (670 or more), you may be able to get a personal debt consolidation loan with a lower interest rate than your credit cards.
If you want to see what interest rate you can claim today, enter your necessary information in Credible’s free online calculator to get results right away.
3. Can I have more than one loan?
Although loan requirements vary from lender to lender, many lenders will allow borrowers to take additional loans if they make on-time payments on the first loan. On the other hand, many online lenders explicitly prohibit borrowers from applying for more than one personal loan. If you want more than one loan, contact the lender to clarify the prepayment terms.
Remember that the DTI ratio is one of the most important factors that loan underwriters take into account during the approval process. Your DTI ratio will increase when you take out the first loan, making it more difficult to get a second loan if your DTI is above 36%.
4. How much should I borrow?
Just because a lender can approve you for a loan amount that is more than the amount you need, doesn’t mean it’s a good idea to take the maximum amount they’re offering. It doesn’t make sense to borrow more money than you need and pay more interest.
Examine your budget to determine if you can afford the loan repayments. You can also use a personal loan calculator at Credible to find the best rates and determine how much interest will cost you over the life of the loan..
5. What are the alternatives?
There are a few alternatives to borrowing that may be better for dealing with financial hardship than installment loans.
0% APR credit card: If your credit is good or great, you may be able to get a 0% APR credit card and only pay interest if you keep a month-to-month balance. In other words, if you pay off the balance during the introductory period, you actually get a short term loan for free. However, the card is likely to have a high interest rate after the 0% introductory period has expired, so try to pay it off before then.
COVID-19 Payment Plans and Payment Options: State and federal governments, as well as private companies, offer forbearance and deferment programs to help those financially affected by the coronavirus pandemic. This means you may be able to withhold payments or make reduced payments for many of your bills, including your mortgage or rent, vehicle, credit cards, loans, and utilities.
While a personal loan can help you get through a financial crisis, you should only borrow the minimum amount you need. Reducing the amount you borrow is a wise move since you will be paying less interest, leaving you with more money for other things.
Understand the steps to take to get a low-interest personal loan, starting with comparing the best lenders with lower interest rates and longer repayment terms. An online marketplace like Credible makes it easy to compare these variables, multiple lenders, and more in real time, so you have the information you need to move forward..