When you’re faced with a short-term financial emergency, your first thought may be to look for a personal loan to give you a hand, especially if your savings are running low. But no matter what your situation is, applying for a loan should never be done on a whim. While time may be of the essence, this shouldn’t be a process you rush through. Make sure you take the time to ask yourself the right questions before you dive into the borrowing process.
So, if you’re looking to borrow money online, take a look through this list of important loan-specific questions first. They may be able to help you better understand your situation, what you should be looking for, and more.
1. What Kind of Personal Loan Should you Look for?
While it might seem clear to you that you’re going to need some extra cash to deal with your emergency, knowing what type of loan might be suited to your situation is a different matter. There are all sorts of different types of personal loans out there, and they all have their own purposes and structures. For example:
- If you need help dealing with an unexpected expense, you may want to look into a personal installment loan or line of credit.
- If you want to renovate your home but aren’t sure how much it’ll cost you, a home equity line of credit may be an option for you.
- If you’re looking to buy a car, you’d generally apply for an auto loan.
These are just some simple, general examples of situations you might come across. There are all sorts of other loans out there for different scenarios. So, make sure to be aware of what types of loans are out there before you apply for one.
2. Why are you Looking for an Online Loan?
One of the first things you should do before you apply for a personal loan online is to assess your reasoning for wanting a loan in the first place. Why? Well, the reality is that there are certain situations where it may make sense for you to apply for one based on your situation, and there are also bad reasons to apply for a loan.
For example, when we’re talking about short-term online loans, their usual purpose is to help you deal with emergency expenses when you don’t have the money saved to deal with them out of pocket. This could be for things like:
- Unexpected medical expenses: an unexpected visit to the emergency room or the doctor’s office can be an expensive trip. When you factor in the time you may be missing at work, you may need some financial help to deal with the costs.
- Unplanned auto repairs: Let’s say you pop a tire and are suddenly faced with the prospect of missing time at work if you don’t get this dealt with right away. In those instances, a personal loan may help you to pay for the repair if your savings have dried up and get you back on the road asap.
Keep in mind that there are all sorts of types of emergencies out there, even if yours doesn’t fall into one of the two categories we just went over. The general rule of thumb is that if your need is an essential and immediate expense that has popped up out of the blue, you can likely consider it to be an emergency.
An important factor in this discussion is understanding the differences between your wants and your needs. Like we mentioned, it’s also important to be aware of what you shouldn’t apply for a loan for. This can be for things like:
- Shopping trips to the mall
- Paying for regular, expected bills that should already be accounted for in your budget
If you want to go on a trip or buy a new pair of shoes and you have the money for it, go for it! But you should never take on debt to do either of those types of things.
3. How Big of a Personal Loan do you Need?
While you might think that your best move is to try to get as much money as you can from a lender, that may not be the smartest move. It’s important that you understand exactly how much you need and to not try to take on more debt than you have to.
Ultimately, the more you borrow, the more you’ll owe. If you borrow more than you need and money is tight, your loan payments may end up being more than you can handle without you shirking on some of your other financial obligations.
In the end, you’ll need to find a way to juggle all the things that make up your budget, and taking on a bigger loan than you can afford to pay back could be the straw that breaks the camel’s back. So, make sure to only apply for the amount that you actually need.
4. How Soon do you Need Funds?
The speed of the borrowing process is an extremely important detail when it comes to applying for a personal loan when you’re facing an emergency expense. You’ll want to have an idea of how long the process is going to take from when you first start to fill out a loan application, to when you have money in your bank account, assuming your application is approved.
Ultimately, the answer to this question could be what determines which financial institution you apply through. Each one will have its specific process, so you’ll need to be aware of what this is.
In some cases, you’ll be able to apply for a loan 24/7. This is typically just with financial institutions that offer or service loans online. These applications can sometimes take as little as a few minutes to fill out. Once your loan application is assessed, you may be able to get your funds as soon as the same business day, depending on the institution and your bank, and assuming your application is approved.
Like we’ve mentioned, when you’re facing an emergency and need some extra funds, you’ll likely want to have this process go as fast as possible. Because of this, it’s important you look at the borrowing process with any financial institution you’re considering applying through.
5. Do you Meet the Requirements for an Online Loan?
Not only does borrowing money have big implications for your financial situation, it’s also a big decision from the perspective of the financial institution offering the loan. Because of this, these organizations will want to make sure you’re able to meet particular criteria before your application can be assessed.
Here are some of the factors that may be taken into consideration when you apply for a personal online loan.
There’s a legal age to contract in every state, so financial institutions need to make sure you meet whatever the necessary age threshold is.
State of Residence
Usually, a financial institution will require potential borrowers to be a permanent resident or U.S. citizen. On top of that, many organizations are only licensed to operate in certain states, so they’ll also need to make sure you’re a resident of one of those states.
The State of your Finances
Generally, a financial institution will want to get some sort of idea of what your financial situation is like, or more specifically, how likely you are to make all your loan payments in a timely manner. In a lot of cases, this means that they’ll need to check your credit score.
Different organizations will have different credit score thresholds, and your score could ultimately help to determine whether your application is approved or not, what your interest rates will be, and/or how much money you’re approved for. On top of this, they may also look into your employment situation and want to know what your total income is.
Consider the Right Questions
Whenever you’re thinking of applying for a personal loan, it’s never a bad idea to make sure you’re as informed as possible going into the borrowing process. Ultimately, this can help you decide what’s best for your overall financial situation.
Like we’ve mentioned numerous times already, borrowing money is no small thing. No matter what your situation is, taking on debt can put a lot of extra strain on your budget, and the consequences of not dealing with it properly can be hugely impactful.
So, before you make the decision to apply for a loan, make sure you’re asking yourself the right questions. Once you feel like you have a good grasp on what your situation is, what your needs are, and what your potential options are when dealing with your emergency expense, you can put yourself in a position to make the right decision for your situation.
Posted in: Personal Loans