Find us on Google+ My Sensible Cent: Financing Your Emergencies Through Personal Loans

Wednesday, July 24, 2013

Financing Your Emergencies Through Personal Loans

There are times in one’s life when unforeseen circumstances necessitate borrowing money. You might pride yourself on being fiscally responsible and go to great lengths to manage whatever debt you may have as best you can, but life is unpredictable. Sometimes it is simply impossible to be prepared for anything life might bring your way.

Perhaps you need a medical procedure and, whether you have medical insurance or not, you simply cannot afford to pay in cash. Or perhaps your car has broken down – a car you need for work purposes, for example – and the damage turns out to be far more extensive than you can afford to pay from your savings. These are just two examples of circumstances where personal loans can save you from financial ruin or other unacceptable consequences.

As with all financial matters, it is always best to do business with a reputable institution. And even then, you should never leave your financial security completely in someone else’s hands. It is vital that you educate yourself and do your research so that you know what you want, what’s available, and which risks to avoid.
It is mostly when unforeseeable event occur or a crisis has arisen that one could easily fall prey to unscrupulous lenders who prey on desperation. Whether you are dealing with a big financial institution or small enterprise which deals only in personal loans, there are some serious risks to be aware of and some pertinent questions to ask.

The most common – and “fastest” – type of loan available at the moment is an unsecured loan, which means you are allowed to borrow money without offering any collateral, without having a co-signer and even if you have a bad credit record. The most worrisome aspect of unsecured loans is that they usually carry interest rates which are much higher than average and thus end up costing you far more than they reasonably should, or than you can afford. The reason these types of loans have such high interest rates is that the lender is taking a bigger risk. Make sure you know what the interest rate will be, do your calculations and decide whether you will be able to pay back the loan.

Another risky aspect of personal loans is the fact that they could involve exit or prepayment penalties. If you happen to find yourself in a situation where you are able to pay off the loan in one lump sum, or sooner than first agreed upon, you might incur a prepayment penalty or have to pay an exit fee for the loan account to be closed. Ask whether any such penalties would apply when you first approach a lender. Naturally, having any kind of debt is not ideal for your fiscal security. Yet for the largest part of the population, taking out a loan of some sort at some stage of your life – be it a study loan, home loan or vehicle financing – is unavoidable.

To ensure your financial situation remains as healthy as possible, it is critical to manage your debt proactively and responsibly. Make sure you’ve done your research and have shopped around for the best interest rate.Deal only with reputable financial institutions if at all possible and, most importantly of all, make sure you pay off your personal loan in strict accordance with the timeframe and increments initially agreed upon. And if at all possible – and if you won’t incur penalties which will nullify the benefit – pay off your loan as soon as you can. Debt is expensive.

No comments:

Post a Comment