For many, personal loans are a quick and convenient answer to unforeseen financial gaps. Although qualifying and getting approved for a loan application may seem like a tough hill to overcome, the real challenge starts after you get access to your loan. More often than not, plenty of people tend to get into sticky situations because they mismanage or use their personal loans irresponsibly.
It would be wise to remember that once you take out a loan, the end goal is to always pay back the licensed money lender on time, which means keeping close track of your payments and staying on top of your budget. Thus, to ensure that you spend your personal loan wisely, get to know the following tips on becoming a smart and responsible borrower.
1. Know that personal loans are not simply credit cards but with higher interest
People with bad credit or a blank credit history assume that personal loans are just like credit cards but with slightly higher interest and thus do not take them seriously. However, personal loans are generally the best way for these borrowers to improve or build their credit history while simultaneously getting the financial support they need. Some situations in which personal loans can be incredibly helpful are for paying off costly late-term school loans or financing life milestones such as a wedding.
2. Come up with a plan for complete and on-time loan payments
The adage, “failing to plan is planning to fail,” rings truer than ever when it comes to repaying a personal loan. This is why it would be best for borrowers to make sure they can afford the monthly payments before signing up for a personal loan and effectively determine that their overall monthly payment (including principal and interest) ideally does not exceed 20 per cent of their take-home pay.
Of course, coming up with a repayment plan naturally involves knowing the due dates and terms of the loan, especially the interest rate and whether it is fixed or variable. Adhering to these conditions is essential to avoid incurring penalties like late fees and early repayment fees. To that end, it is advisable to set constant reminders on your phone or physical calendar to avoid getting overwhelmed by the number of things to remember and to always stay on top of due dates.
3. Keep a reserve to cover for personal loan emergencies
Emergencies and unexpected events can come at any time and leave our finances in disarray, which can also put our loan repayment at risk. This is why it is crucial to reserve an emergency fund that can cover at least three to six months of loan payments as a safety net in case something happens. Having a cash cushion will prevent you from becoming a delinquent on your loan or, in the worst case, defaulting altogether.
4. Consider refinancing if you can no longer meet your personal loan payments
Even with the best of plans in place, anyone can find themselves struggling to meet their payment responsibilities each month. If you ever find yourself in this situation, it may be best to consider personal loan refinancing. Refinancing allows you to enjoy lower personal loan rates than your current loan terms. This can help you make your payments easier since it reduces the monthly payment amount moving forward.
If used and managed well, personal loans can help alleviate your financial shortcomings, improve your credit history, and overall enhance your quality of life in the long run. With the tips above, we hope you now have a good idea of how to best manage and make the most of your loan!
Orange Credit is always here to lend a hand if you’re in a financial bind and could use some help! We are a licensed and reputable Geylang money lender offering a variety of loan services fit for all kinds of situations and borrowers, such as personal loans, foreigner loans, bridging loans, business loans, and more, all of which come with affordable interest rates and can be tailor-made for your needs!