Is a personal loan right for me?
When deciding whether to obtain a personal loan, consider the benefits and responsibilities. A personal loan:
- Obligates future income. You will be required to set aside a certain amount of future income for loan payments.
- Requires discipline. Borrowing wisely means not borrowing more than you can handle. Do not let the thrill of buying or having a sum of cash obligate you to more than you can afford.
- Makes it possible to meet unexpected expenses. The ability to borrow and make affordable payments can be helpful if an emergency arises that requires extra money.
- Allows you to obtain products and services now and pay for them later. A loan can provide an opportunity to purchase bigger-ticket items and use them right away.
What happens when I apply for a personal loan?
You will be asked to complete a credit application that may include: your name, social security number; date of birth; current and previous addresses and length of stay; current and previous employers and length of employment; occupation; sources of income; total gross monthly income; and financial information on existing credit accounts. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection action, outstanding debt, and the age of your accounts is collected from your credit application and your credit report. Your credit history helps predict how creditworthy you are - how likely it is that you will repay a loan and make the payments when due. The creditor's decision to loan you money is based, in part, upon what appears on your complete credit application and your credit report.
Will I need a co-signer?
A co-signer may be needed if the borrower has: not applied for credit before; an income level too low to qualify for the loan; seasonal or sporadic income, a weak credit history; or excessive financial obligations. A co-signer assumes equal responsibility for the loan. The account history will be reflected on the co-signer's credit history as well. You should exercise caution if asked to co-sign for someone else. Understand the terms and conditions before you co-sign and keep a copy of the loan contract. The Federal Trade Commission's Credit Practices Rule requires creditors to advise co-signers about his or her potential liability if the other person fails to pay. State laws can vary in consumer protection provisions relating to co-signers.
Do I need credit insurance?
Its purpose is to repay the debt if the borrower dies or becomes disabled. Credit insurance purchased in connection with a consumer installment loan is optional in most states. In deciding whether to get credit insurance, evaluate what would happen if death or disability were to occur before the loan is repaid. If a borrower wants credit insurance, he or she is required by federal law to sign a statement to that effect. The cost of credit insurance coverage must be disclosed in writing. You are entitled to receive a copy of the certificate of insurance from the creditor.
What terms of financing should I know before I sign?
Take the time to know and understand all of the terms, conditions, and costs of a loan before you sign the contract. Review your credit application and loan documents carefully. Ask questions about any items you do not understand before you sign.
What happens if I am late with my payments?
Creditors understand that circumstances such as unemployment or illness can make it very difficult to meet bill payments. If this happens to you, contact your creditor, explain your situation and work out a repayment schedule. You also might be offered the option to "refinance" or "renew" your loan. Keep in mind that early or frequent renewals can significantly increase the overall cost of your loan. Each time you refinance, you pay additional fees and interest charges. Refinancing should only be an option if it serves to benefit you and fits into your spending plan. If your situation requires outside help, contact a nonprofit budget and credit counseling agency, often called a consumer credit counseling service. These agencies can work directly with consumers and their creditors to help resolve debt problems.
What Federal Laws Should I Know?
Truth in Lending Act
Requires creditors to give you written disclosures of important terms of the credit agreement such as APR, finance charges, monthly payments amounts, payment due dates, total amount being financed, length of the credit agreement, and the consequences of not making a monthly payment.
Federal Trade Commission's Credit Practices Rule
Requires creditors to provide a written notice to potential co-signers about their liability if the other person fails to pay, prohibits late charges in some situations; and prohibits creditors from using certain contract provisions that the government found to be unfair to consumers.
Equal Credit Opportunity Act
Prohibits the denial of credit because of your sex, race, marital status, religion, national origin, age, or receiving public assistance.
Fair Credit Reporting Act
Gives you the right to learn what information is being distributed about you by credit bureaus.
Fair Debt Collection Practices Act
Prohibits third party debt collectors from using unfair or deceptive practices to collect overdue bills that your creditor has forwarded for collection.
Other products may be offered for purchase with your loan such as a motor club membership, term insurance, or third party service contracts - these are optional and not required to get a consumer loan