How to Safely Use Loans to Combat Pandemic Instability
The pandemic hit us hard and resulted in millions of Americans all over the country being laid off from their employment. As a direct result of this, many households out there are experiencing significant financial hardships. Of course, the first idea that anybody suffering from a financial crisis has is to get a loan. But how do you safely use loans to combat pandemic instability?
Suppose you have decided to take out a personal loan to combat the instability that you have suffered from the pandemic. But you are not sure where you need to start. It would help if someone took the mystery out of you searching for a loan in the marketplace, so you know just which one to use safely and get back on your feet the moment the pandemic is over and you can find employment.
Understanding Personal Finance Loans
Personal loans are incredibly different from auto title loans, which you can even get with a bad credit score. If you have decided that you would like to take a loan out from a bank, an online lender, or a credit union, that is considered a personal loan. When you apply for one, and your application is approved, you receive a lump sum, and you eventually end up paying it off in monthly installments with an interest rate. Before the pandemic, these loans were initially taken out to pay for a home or a vehicle. However, you can use these personal finance loans for almost any reason, which suits you well if you suffer from financial instability during the pandemic.
You don’t need much for a personal loan; all you need to do is ensure that the lender will receive the loan back and that you have a good credit history. It is only when you repay the loan that you pay interest. If you have a high credit score and have paid off most of your debts in the previous years, you will receive a lower interest rate than usual. However, if your credit score is bad, it is possible that you may not even qualify for a loan. But if you do, you’ll end up paying a much higher interest rate than others around you.
What to Look for in a Personal Loan
Even if you have decided that you would like to apply for a personal loan, you will be shocked to find many options available to you in this category. Irrespective of your credit score, there are a few things that the best personal loans in the market have in common. Let’s take a look at some of them.
This one is kind of a no-brainer. The best loan out there is the one that has a low-interest rate. The interest rate you pay is calculated as a percentage of the lender’s total amount you have borrowed. If you have received a low-interest rate, then that means you end up saving a lot more money when you’re paying back the loan. Suppose you have borrowed $20,000 during the pandemic, and you plan to repay this loan in a five-year term. You have two options: go with lender A or lender B. If you would like to utilize a loan during pandemic instability safely, you must know just how interest rates work so that you can save a significant part of your money down the line.
If your interest rate is 5.5% and your monthly payment is $382, then that means that you have paid a total of $2,921 in interest over the life of your loan.
If you’re interested in 6.9%, and your monthly payment is $382, then that means you have paid a total of $3705 in interest over the life of your loan.
A difference between the percentages might not seem like a lot, but you end up saving a total of $780 if you go with lender A over lender B. If you go with the second lender, you will overpay $13 every month. It can add up.
If you have bad credit, you may end up being at a much higher interest rate if you apply for a personal loan. If this is your situation, you have a few options. You can work hard and do some research to figure out how to improve your credit score and apply for a loan when you have a better score. The second option is to apply and get a loan right now and then refinance your personal loan down the line when your credit score has improved, and you can get a much better rate in terms of interest.
Take Your Time
If this is your first time applying for a loan, it is OK to take your time with it. The first step you would take that doesn’t require you to decide on which lender to go with and what kind of loan to apply for is to gather all the documents. Here are some of the documents that you will need:
- Proof of address
- Proof of identity
- Monthly expense list
- Worth of your collateral (if you are applying for a secured personal loan)
If you are not sure, it always helps to take advice from either a friend or a lawyer who specifically deals with these kinds of loans. It may help more than you know.
The pandemic has indeed been challenging, but don’t let that drown you in debt. If you don’t have the assets to cover all your financial needs during the span of the pandemic, you may apply for a loan if you are confident that you can repeat it in monthly installments when needed. You must make sure that it does not affect your credit score in any way, or it could jeopardize your prospects.