Personal loans, installment loans, or lines of credit — whatever loan type you choose, borrowed money may be convenient.
Loans may boost your purchasing power when you’re ready to buy something major, like a car or a home. Like in the case of an online loan from MoneyKey, loans can also act as a backup in an emergency, for example when your car needs urgent repairs that you can’t afford.
While a loan may help you achieve certain goals faster, or help you with unexpected expenses, loans are a significant financial undertaking.
To make sure you’re prepared for that responsibility, check in with this list. It provides you with some helpful tips for the different stages of the borrowing process - from before you apply, to after you repay, and even some of the steps in-between.
1. Borrow for the Right Reasons
What types of expenses should warrant a loan?
Money is personal, so the answer varies from person to person. Here are three examples of situations where a loan might come in handy:
- An unexpected repair. During your seasonal tune-up, your mechanic finds an issue that requires an expensive part they have to order in from overseas. If you haven’t budgeted for this repair, an installment loan may help you cover what you can’t afford.
- An unplanned charge. A random spike in your utility rates can bump up your usual balance to something much higher than you can handle. If it’s something you can’t afford, a loan may help you pay off this extra charge. You can check this out to see what you need before you apply for a loan through MoneyKey.
- A sudden shortfall. Financial luck tends to ebb and flow. Sometimes, it’s easy to stow away money into savings and cover all your bills. Other times, it might feel like you attract every possible bill and unexpected expense while you’re sick and lose a few days’ pay. A line of credit may help you cover these unlucky shortfalls during a tight month.
The reason why you need a loan may vary, but it should be for a necessary expense you can’t ignore. Unlike a holiday you don’t have to book, a repair to the car you need to get to work every day isn’t something you can delay.
2. Research Your Options
Once you know why you need to borrow money, the next step in responsible borrowing is finding a loan that fits your needs the best.
It’s a very important step. There are a lot of different products that fit under the umbrella of a personal loan.
Although you may feel overwhelmed with your choices at first, a greater selection is a good thing. Take advantage of it. With so many possibilities, you have a better chance of finding a loan that’s tailored to your needs.
You just may need to spend some time searching for the right loan. You may be off to a great start if you read this blog post about how personal loans work. It shares valuable information about when a payday loan, installment loan, and line of credit may be the right choice for your finances.
Check it out alongside these Consumer Tools to help you learn about your personal loan options. It provides quick and helpful information on different credit options, which may help you with choosing the best option for your needs.
3. Know Your Credit Score
When it comes to numbers you have memorized, you may know your Social Security Number off by heart. You might be able to recite your childhood best friend’s phone number for a landline that doesn’t exist anymore, even if you can’t remember any of your current friends’ cell numbers.
But what about your credit score? Maybe not.
Compared to your credit score – a number that may fluctuate regularly – these numbers are easy to remember. While these numbers may be stuck in your brain forever, they won’t impact your odds of being approved for a loan like the three digits of your credit score.
A credit score is important. Some lenders require their customers to have a certain score before they’re willing to lend them any money. When you know what your credit score is, you’ll may better know which lenders and products are within your reach.
Knowing your credit score can also help you understand why you may have been denied before. If a traditional lender has rejected your application in the past, you may have better luck when you borrow from an online lender.
What credit score do you start with?
A credit score is based on several things, including your past payment performance. According to FICO, the most common credit-scoring model in the country, credit scores range between 300 and 850.
Because of this scale, it’s unlikely to have a zero as your number. You start building a credit score when you start various financial actions, such as borrowing money and making or missing payments, such as loan or bill payments.
What credit score do you need to start borrowing?
Unfortunately, there’s no one-size-fits-all answer. It depends on the product you want and the lender you’re looking to borrow from.
Don’t worry if you have a poor credit score, you may still qualify for certain online loans.
Today, many Americans are in a good spot. Recent numbers show the average credit score in the country is 704. However, some people slip through the cracks.
If you have poor credit, your score may limit your options, but thanks to the large pool of options in the lending world, you may still find second chance personal loans with bad credit.
4. Review Terms and Conditions
It doesn’t matter whether you’re looking for a student loan, mortgage, auto loan, or line of credit — each of these products represents a type of loan that will yield a certain amount of credit, accrue interest, and will need to be paid back in a certain amount of time.
Under each subcategory, individual loans from different lenders will have their own unique terms and conditions that impact all of these things as well. You won’t know what the specific terms and conditions are until you read them over.
Yes, we realize reading over terms and conditions isn’t how most people prefer to spend their time. Some of us don’t read some of the contracts we come across in our day-to-day lives.
It’s little wonder why. If you’ve ever tried to read the terms preceding an update to your smartphone’s operating system, it may feel like you need a law degree to understand it.
While you may be able to get away with ignoring these end-user license agreements (or EULAs, for short), you’ll want to read the terms and conditions of your loan in full.
This document should contain the information you need to determine if a loan is a practical option for your needs. It should outline important terms such as dates and fees, and your rights and obligations as a borrower.
Unlike some of the EULAs peppering the Internet, MoneyKey’s rates and terms are refreshingly simple. At MoneyKey, we strive to keep things as straightforward as possible to make understanding the terms and conditions of your loan easier.
We try to make our loan documents as clear and easy-to-understand as possible, so that customers have the information they need regarding a loan.
5. Know Your Budget
Even an installment loan with competitive rates may be difficult to repay if it doesn’t suit your financial situation. Ultimately, whether an online loan is affordable, comes down to how much money you have on hand. You need to know if you can afford repayments along with your regular financial obligations.
A budget is a tool you can use to see if a loan fits your finances. By knowing where your money is going each month, you’ll be able to recognize if you have enough cash left over to cover your repayments.
6. Reduce Monthly Expenses
If you get an online installment loan (or any personal loan for that matter), it’s important that you do everything in your power to meet your repayment schedule.
While your friends and family may excuse your chronic lateness when it comes to texts and get-togethers, your lender may not be as forgiving.
Some lenders charge late penalties if you miss a due date. If they report your payment history to credit agencies, late or delinquent payments may lower your credit score.
To be fair, there may be a lot of pressure on your budget when you’re making loan payments. If you find it hard to meet these payments while covering your usual living expenses, reducing your monthly expenses may help relieve some of that pressure.
A budget is the perfect tool to help. Since you have to track your expenses to properly make a budget, you’ll be able to see how you spend your money in ways that don’t serve you. Bad spending habits tie up your cash in unnecessary ways.
If you can hold off on what you normally spend on takeout, streaming subscriptions, and online shopping, you can use the money you save to help cover your scheduled repayments.
Once you pay back your loan, you may reintroduce these habits into your life. Or, you can continue to live without them and put the extra cash aside in a savings account. Savings may help you tackle the next unexpected expense that comes up.
7. Pay as Early as Possible
If you aren’t sure what you should cut out from your budget, there’s no harm in being too strict. Any extra money that you save by eliminating purchases can go towards your loan, even if it exceeds the payment you’re expected to make.
Think of the amount you have to pay back as a minimum. Some lenders may allow you to pay more than your scheduled payment.
Early repayment may work in your favor if you’re able to do so. Most personal loans accrue interest and other fees starting from the day you receive your cash. By making larger payments, or additional payments in between scheduled ones, you may be able to reduce how much you pay in interest and fees.
But don’t worry if you can’t make extra payments. As long as you pay the minimum by the due date, you most likely won’t accumulate late fees or other penalties.
Your loan agreement should outline when you have to pay back your loan. But in general, you can expect the following:
- Payday loans: You usually have to pay everything back in one lump sum by your next pay date.
- Installment loans: Your repayments are usually spread out over time in smaller increments.
- Lines of credit: You’ll have to pay a minimum balance based on your usage.
8. Don't Borrow from Multiple Lenders
Many online installment loan lenders will limit the number of loans you can borrow at a time. Here at MoneyKey, you must repay a loan in full before you apply for another.
Technically, you may be able to take out more than one loan at the same time with different lenders. This is called loan stacking, and it’s used by some people when they can’t get enough cash from one lender. This is something you’ll want to avoid.
If it sounds too good to be true, it’s because it is. Loan stacking may:
- Lower your credit score: Some applications involve a hard inquiry into your credit that shows up in your credit history. Hard inquiries can dock points from your score.
- Jeopardize your finances: Juggling your normal living expenses and one personal loan can be challenging enough, especially if you accept a loan with a short repayment term and a high Annual Percentage Rate (APR). Being responsible for multiple loans over the same time period may prove to be too difficult.
When borrowing money, make sure you’re borrowing an amount that you absolutely need and choose a loan with repayment terms you can meet without struggling. When you borrow money with repayment terms that are within your means, you’re more likely to pay back what you owe on time.
9. Assess Your Finances
It may not feel like it while you’re in repayment, but eventually, the day you pay your loan all back will arrive. When it does, you should pause to congratulate yourself. It’s a big accomplishment!
You should also take some time to think about your financial goals. Self-reflection can be one of the ways to make positive changes in your life.
Your goal may be simple. For example, maybe you don’t want to take out an online installment loan the next time you take your car in for a tune-up. Or maybe you want to save up for something major, like a car or house.
By thinking about your goals, you can start preparing your finances to meet these goals.
It also puts focus to your spending and saving habits. You can start thinking about what changes you need to make to reach your goal — or goals if you have more than one. There’s no rule against being ambitious!
Let’s take a look at three examples of financial goals:
- Building an emergency fund: If you want to be ready for an unexpected expense, an emergency fund can help you prepare for a time in need. Check out some ways to lower your expenses. These tips may be able to help you increase how much you contribute to savings.
- Buying a car: One of the first steps when getting a car is figuring out what model you want. With a specific vehicle in mind, you’ll know how much money you’ll need.
- Purchasing a home: Owning a home sits at the top of the “must have” list for some people. It also might be one of the biggest purchases some of us will ever make. Once you identify purchasing a home as your goal, you can start putting money aside. In researching how to save for a house, you can find out what credit score you’ll need to help you find a mortgage if you need one.
10. Talk to an Advisor
In times of need, a personal loan may be the right solution for your finances. A loan may help bridge a financial gap when you’re low on funds.
Loans are not a lasting solution to ongoing financial issues. If you’re dealing with long-term debt, you may need help outside of what a loan and basic savings plan can offer.
As a responsible lender committed to your financial health, we encourage you to focus on financial health.
Although it may be stressful, there are professionals that can help. The National Foundation for Credit Counseling offers free credit counselling and other financial counselling in case you need it.
Be a Responsible Borrower
A loan may be a useful tool when you need financial help, but many borrowing options may come with a cost. Not only will rates and terms and conditions vary, but so will qualifying criteria and convenience.
It’s up to you to find the a loan that works.
Borrowing money isn’t just about getting a cash advance and repaying it. It may involve a lot of steps! As you can see, finding a loan that you can reasonably repay and adjusting your budget to help stay on track with payments are just two elements of a bigger process.
To start borrowing on the right foot, check in with this guide when you consider taking out a loan. Whether you’re borrowing for the first time, or you’ve been borrowing for decades, this list may help you remember some important borrowing considerations.