From finally replacing that worn out furnace to paying for their dream wedding, there are many good reasons why people are considering a personal loan. If you have an unexpected expense or simply want to pay off debt or take a family vacation, working with a reputable lender to secure a personal loan is a great option – but it is important to learn some valuable information before signing on the dotted line. Here are a few vital questions to ask your lender before taking out a personal loan:
Is This a Secured or Unsecured Loan?
One of the first questions you need to ask your lender is if you qualify for a secured or unsecured loan. It is vital to understand the difference between the two because, if you don't have any valuable assets, you may not qualify for one of these types of loans:
- Secured Loan – A secured loan refers to a type of personal loan that requires collateral. The lender will hold the deed or title to the property, such as your car or home, until you pay the loan back. If you default on the loan, the lender may have the right to take the property.
- Unsecured Loan – An unsecured loan means that you will not have to put up any collateral. Typically, there is less paperwork to fill out and you will have a fixed interest rate.
Aside from the need to put up collateral, there are other differences between a secured and unsecured loan. For example, the interest rate is lower and amount you are able to borrow is typically higher when you choose a secured loan. This is because you are putting up something valuable as collateral.
How Long Is the Entire Application Process?
The length of the application process for your personal loan will vary depending upon a number of factors. For example, the time it takes to finish the paperwork and obtain your money from an unsecured loan is typically a lot shorter because you're not required to put up any collateral. It takes time for the lender to research whether the collateral is your property and how much it is worth.
Additionally, it is vital to ask right away what paperwork you will need to complete the loan, including pay stubs or prior year tax returns. The more you know about the application process, the more quickly you can complete any paperwork and get the money in your bank account.
Are There Any Extra Fees?
Once again, the types of fees that are associated with your personal loan will depend on the lender. For example, some lenders will ask you to pay a loan origination fee. This fee is basically what the lender will charge you to begin the loan application process. The fee will depend on how much you are borrowing and the rate the bank charges.
Additionally, it is vital to ask if there is a prepayment penalty. For example, say you get an unexpected lump of money and decide to pay your loan back in less time than the repayment period you agreed upon. According to Nerd Wallet, if you pay off the loan too early, the bank may charge a fee to make up for the loss of interest.
If your lender does charge a prepayment penalty, ask them if this penalty can be waived. Typically, your lender will work with you to ensure you aren't expected to pay more for simply paying off the loan faster.
Finally, you need you learn about any penalties for missed or late payments. Once again, if you are unable to make a payment or will be late, working with the lender ahead of time will help you avoid any unnecessary fees.
From asking about any unexpected fees to making sure you don't need to put up collateral, there are many questions you need to ask your lender before signing the dotted line on your personal loan application. Contact a company like Union State Bank to get started.