A Millennial Guide to Getting Personal Loan
#Adulting has been a buzzword among the millennials, and is often used in a witty way to mean taking charge of your own life, doing grown-up things, and holding responsibilities. From having a job, paying bills, ensuring that your car is in good, working condition, undergoing certain medical procedures, planning some home improvement activities, achieving financial independence, and so forth.
But if you would be honest, #adulting is so much more than a millennial jargon. It’s an inescapable reality just like having expanding waistlines and thinning hair, and admittedly, it’s no less scary than the latter two. Unfortunately, there’s no denying that only a few grew up truly prepared to #adult, particularly when it comes to handling finances.
As a Filipino millennial yourself, you know very well that you still have a lot to learn when it comes to your financial health and spending habits. More so, that it takes time to truly take control over this large part of your life.
Fortunately, you now have easy access to financing, among which is the use of credit cards. However, a recent survey says that millennials trust cash more than credit cards.
If you consider yourself a part of these millennials who are iffy about credit cards, you might want to consider getting personal loans. While loans might not be a popular option for a financing solution since online pawnshops are gaining popularity nowadays, they do come in handy for emergency needs and can help in recovering from a financial crisis or taking care of large expenses.
With the help of a little research, you can find a personal loan that suits your needs, use to your leverage, and avoid common pitfalls.
Factors to Consider Before Applying for a Personal Loan
Your Eligibility to Pay
Getting approved for a personal loan is not easy as ABC. Banks, financial institutions, and other organizations that offer personal loans run a rigid process before approving borrowers. Banks and financial institutions always check two aspects, and these are as follows:
- A Fixed and Stable Income
If you have a permanent job, you have a higher chance to get your loan approved compared to freelancers or employees who work on a contractual basis. This is because a fixed and stable income establishes that you have the means to pay for whatever you are about to borrow.
But, first things first. Make sure that you really are capable of setting whatever debt you are about to take on.
- A Good Financial Record and Credit History
Aside from your sources of income, your credit history will also give banks and financial institutions insights whether you have the overall capacity to pay off your loans especially if you have existing loans.
Your total monthly credit repayments are compared against your monthly income to establish your debt-to-income ratio to check if you can pay off an additional loan with them.
If the lending institution is satisfied with your financial capability and credit history, your loan will then be sanctioned.
Before deciding on which personal loan to take, check first the interest rates currently being offered and see if it suits your preferred payment scheme. Compare the market and ensure that you get the best deals with the easiest payment terms.
Should you choose the minimum tenure scheme wherein the personal loan usually lasts for only six months, you will have significantly lower interest fees but higher monthly payments. Meanwhile, expanding your loan term will result in taking on higher interest but smaller monthly payments.
Whatever you opt for, make sure you’re not letting the loan be a burden to your cash flow.
Although financial institutions won’t check this, maintaining a savings account ascertains that you are indeed capable of settling your debts. Simply put, why repay loans when you can’t manage to pay yourself first?
With all these in mind, ask yourself again if taking on a personal loan is the right decision to make. If it is for something you really need but you can’t afford just yet, then go for it. However, if you’re only considering to have extra cash around, then you’re just costing yourself more every day.
Finally, if you choose to do so for the right reasons, do not overborrow. Always look at whether you can afford it and take only what you can. Keep in mind that though it might seem great that you can afford smaller monthly payments, you could end up paying way more than what you’re actually borrowing. So, always look at what it would be costing you over the entire loan period.