Apply for personal loan are often used to consolidate high-interest debt or fund large, one-time purchases. But they can also be handy for managing day-to-day expenses during an emergency once your income has dropped or you do not have money savings to rely on. But there are some things to know before applying for a private loan to make sure it’s the right move.
Is getting a personal loan during a financial crisis a good idea?
There are some pros and cons related to getting a personal loan during a financial emergency.
On the pro side, it could be cheaper to get a personal loan than charging expenses to a credit card. If you can lock in a low, fixed-interest rate on a personal loan, that may be preferable to the higher variable interest rate that charge cards typically charge.
You might also have the ability to borrow more money with a personal loan compared to a credit card. And an unsecured personal loan does not require collateral or have the potential to trap you in a cycle of expensive debt, like a car title loan or payday loan might.
On the other hand, it is important to take into account the current lending environment.
In addition, he noted that it is important to think about your ability to repay a personal loan if you are experiencing a financial crisis since you have been laid off or lost your job entirely.
A loan could help cover your expenses for a few months but if you can’t make the payments, you could be in worse financial shape than before you borrowed. Running the numbers through a private loan calculator before applying can help you estimate your monthly payments.
Can I apply for personal loan with a bad credit score?
Banks and online lenders look at your credit rating and credit history when considering your loan application. For those who have bad credit, getting a personal loan during a financial crisis might be an uphill climb.
If you are ready to get approved for financing, you might end up paying a higher interest rate to borrow.
A simple way to check the waters on interest rates is to acquire pre-qualified for a personal loan. Credible allows you to find personal loan prequalification in minutes. And because it involves a soft inquiry only, prequalifying won’t influence your credit score.
This may give you an idea of what type of interest rates you might qualify for, based on your credit history.
How can I get the best interest rate on a personal loan?
If you’re considering using a personal loan to cover expenses during a financial crisis, it is worth it to try to find the lowest rates possible.
If you’ve got a checking account with your bank, as an example, and have a good banking history the bank may be more inclined to provide you with favorable rates.
Aside from this, you can focus on improving your credit score and overall financial picture. Spending time, keeping debt balances low and restricting applications for new credit can work in your favor.
You could also increase your chances of getting a better rate by comparing lenders to see which ones have the best conditions. Again, you can easily compare private loan options through Credible, without triggering a challenging inquiry of your credit.
What are my other options?
When you need money in a fiscal crisis, it is important to leave no borrowing stone unturned.
For example, Meltzer said you could consider borrowing from friends or family. However, it’s important to be sure you can repay what’s owed to avoid conflicts down the line.
Boosting your income with a side hustle or part-time job may also be something you could try. But if you need money in a pinch, you can consider starting a new zero percent APR credit card.
That can let you cover expenses today without triggering interest charges.
If you can’t pay the balance in full prior to the zero percent APR expires, then you may want to find a balance transfer credit card. Transferring the remaining balance to another card with a 0% APR can help you avoid paying interest.
Keep in mind, however, that many cards charge a fee for balance transfers. And if you’re ready to get a lower rate of interest on a personal loan, it could be the best borrowing solution when money is scarce.