The Smart Borrower's Guide to Personal Loans

Secured vs. Unsecured Personal Loans

Diving into the world of loans, you’ll encounter two types: secured and unsecured. If you’ve never heard of these terms before, that’s completely fine. Don’t get intimidated. The differences between the two are actually quite simple!

Secured Personal Loans: These are loans that require collateral. Collateral is a piece of property (like a home or a car) that you pledge to the lender for the privilege of borrowing money. Since collateral lowers the risk involved for the lender, these generally have lower interest rates.

Unsecured Personal Loans: This is the opposite of a secured personal loan – no collateral required! However, you may have to be more wary of your credit history when applying for an unsecured personal loan. Plus, they typically come with higher interest rates.

How Personal Loans Affect Your Credit

Personal loans don’t exist in a vacuum. How you handle them will affect your credit history for better or for worse. That’s why you should be a responsible borrower, starting with learning how exactly they affect your credit history:

Credit Inquiry: Applying for a personal loan may trigger a hard inquiry, which might temporarily dip your credit score.

Debt-to-Income Ratio: Increasing your debt without increasing your income can raise your debt-to-income ratio, potentially lowering your credit score.

Repayment History: Consistently repaying your loan on time can positively impact your credit score over time. If you don’t... well, let’s just say those missed repayments are going to haunt you back when you’re having a hard time taking out a loan in the future.

Choosing a Personal Loan

Choosing a personal loan is kind of like shopping for the right outfit. You need to consider what suits your personal style, your lifestyle, your ideal fit. Applying that idea to personal loans and credit accounts in general, here are a few factors you have to consider:

Interest Rates: Interest is the amount you need to pay on top of your monthly installments. Look for the lowest interest rates to reduce the overall cost of borrowing.

Terms and Conditions: Make sure you know what you’re getting into by reading the fine print. Understand the repayment terms, fees, and any penalties for early repayment.

Lender Reputation: Choose reputable lenders who offer transparent terms and positive customer service experiences.

Personal Loan Management Tips

Managing personal loans is a part of adulting in Expert Mode, so don’t feel bad if you don’t master it right out the gate. To make sure you’re prepared, here are a number of tips we highly suggest you follow:

Automate Payments: Forgetting repayments can leave a nasty mark on your credit history. To avoid that, set up automatic payments on your banking app!

Budget Management: Keep track of your finances and adjust your budget to accommodate loan repayments. We know, it’s a huge sacrifice, but we guarantee your future self will thank you.

Avoid Unnecessary Debt: Only borrow what you need and can afford to pay back. The last thing you want to do is drown in debt.

A Gift and (Potentially) a Curse

Personal loans can be a powerful tool in your financial arsenal if used correctly. Choose the right one, manage it well, and it can do wonders to your credit history.

If you handle it irresponsibly, though, it could do the complete opposite and set you back financially.

So, loan smart and make personal loans drive you towards your financial goals. Good luck, luv! And if you need more pointers, you know where to find us.