Taking a personal loan to consolidate debt, pay for your business expenses or buy a home is a great way to get some extra cash. According to SoFi professionals, “A personal loan is a borrowed sum of money that is paid back with interest in installments.”
However, if you don’t follow these five rules when taking out a personal loan, you could end up losing more money than necessary. Here are the rules that will help you stay on track when applying for personal loans:
Rule 1: Don’t get a personal loan for unnecessary expenses.
When it comes to taking a personal loan, there are some expenses that you should never get a loan for.
- If you can pay for the item or service in cash, don’t take out a personal loan to fund it.
- If you can charge the purchase on your credit card and make payments over time, don’t take out a personal loan to fund it.
- If you have equity in your home, don’t take out a personal loan to fund it unless absolutely necessary.
Rule 2: Make sure you can afford the personal loan terms before accepting an offer.
You need to make sure you can afford the personal loan terms before accepting an offer. The first thing to check is the monthly payment amount and its frequency, as well as any other fees associated with the loan. Make sure you understand what will happen if you miss a payment or make one late, and how much it will cost in penalties. If these costs seem manageable for your budget, then go ahead and accept the offer!
Rule 3: If you have equity in an asset, borrow against that instead of getting a personal loan.
If you have equity in an asset, borrow against that instead of getting a personal loan.
This is a simple way to make sure that you’re only spending money on things you absolutely need and want. If you can afford to pay off the loan quickly, then go for it — but if not, try to find another option first.
Rule 4: Prioritize paying off high-interest credit card debt
If you’re drowning in debt, the first thing you should do is establish a budget and start paying more than the minimum amount due each month. You can use what’s left over to pay down your personal loan debt. If this isn’t possible, prioritize paying off high-interest credit card balances because they’re more expensive than personal loans and harder to pay off.
Rule 5: Use a personal loan to save money on interest or finance large purchases that you can pay off in a year or two.
Finally, you should use a personal loan to save money on interest and finance large purchases that you can pay off in a year or two. Interest rates with personal loans are generally lower than those of credit cards, so if you’re paying high rates on your credit card debt, this is one way to do it. Furthermore, if you need to borrow money for a big project like buying a car or starting your own business, then it’s worth considering using a personal loan.
In short, you should use a personal loan to save money on interest or finance large purchases that you can pay off in a year or two. One thing to remember about personal loans is that they’re not free money—they carry higher interest rates than other types of debt, so it’s best to avoid taking one out unless absolutely necessary!