Personal loans have a variety of language in the agreements which can greatly impact the quality of the loan as well as whether it makes sense for you to borrow under this loan, or to search for another better arrangement.
The most important part of any loan agreement is the interest that they are charging you. The interest rate charged is dependent on the credit history and score that you have, the amount that you are borrowing, as well as the length of time that you are borrowing for (longer terms have higher interest rates). Get comparison quotes from different lenders before you settle on one loan options.
Understanding Personal Loan Agreement
Other parts of your loan agreement which may be of note of interest to you are any guarantees or co-signors needed on the loan, any prepayment penalties that will be charged if you repay your debt early, and the penalties that you are going to receive if you don’t repay the debt in accordance with the personal debt terms. Pay attention to any other fees charged on a personal loan that you are getting into, such as charges for credit checks and other loan initiation fees.While these fees are often just part of getting a loan, it is important that they are not excessive and be sure to compare the fees charged by one lender against those charged by other personal loan lenders. Build an amortization chart and sum up all of the cash outflows including fees, interest, and debt repayments, so that you can understand the total cost of repaying the loan that you have entered into.
Telling the Difference Between Good Credit and Bad Credit
Many people differentiate between good and bad forms of credit. The difference between good and bad credit is easy to understand but hard to define in a fine line comparison. Debts like mortgage debt are considered to be a form of good credit as you will have a sizeable asset after you repay your debt. Other debts like credit card debt which has a high-interest rate associated with it, is often considered to be a form of bad debt. These are more extreme examples.Personal loans can be good or bad depending on the terms of the arrangement. For example, if you have a reasonable interest rate on your debt, non-punitive repayment terms, and you used the proceeds from the loan for productive purposes, it is often considered to be a form of good debt. If you have a higher interest rate, spent the proceeds on something that is frivolous, and repayment of the loan introduces all sorts of challenges into your life then it is considered to be a form of bad debt. It is important to control your expenditures through budgeting and personal deprivation in order to repay your debt in a reasonable manner.
Budgeting for Repayment of Your Loan
When you borrow under a loan you will receive a monthly or quarterly repayment schedule. Under this arrangement, you will repay your loan amount in fixed amounts each repayment period until your debt is repaid. Each payment will consist of both principal and interest and the interest portion will shrink as the debt is repaid. Some personal loans have variable interest rates that fluctuate with the market and result in variable payments that are harder, but not impossible to plan.Either way, you will need to budget sufficient money to repay this loan each month. Have a set amount from each paycheck dedicated to loan repayment and build in an extra cushion to cover a month or two for repayment in case your income is variable and unpredictable so that you aren’t left without sufficient finances. If you are still left feeling uncertain, look through your budget and try to find another place somewhere you can cut down on your living expenses and set aside additional money for loan repayment.