Financial LiteracyGeneral

Financial Literacy Week 4: How to Borrow Money Wisely

Are you trying to consolidate debt?

Do want to establish or improve your credit score?

Do you have a big expense that you need to finance over time?

If you’re nodding along, a personal loan may be a good solution, but before you get one, it’s important to make sure it’s the right solution for you.

Is a personal loan the right solution for you?

If you have high-interest debt you’d like to consolidate or a big expense that really can’t wait (like a home improvement project, medical expense, or some kind of emergency), a personal loan may be a good choice for you.

But if you want to go on a vacation, buy a new TV, or plan an extravagant wedding, a personal loan may not best the best choice for you. In these cases, a 0% interest credit card may be a better option, or it may make sense to simply postpone the purchase and start saving.

If, however, you decide that a personal loan is for you, the next step is to do your homework and get informed.

Know the facts and your loan options

Before you get a loan, it’s important to know about your options and how they compare. While evaluating, you’ll want to ask questions like:

● What is the interest rate?
● What are the monthly payments (and can I afford them)?
● What happens if I can’t make my payments?
● How will this loan affect my credit score?
● What is the approval process?

If you’re not sure which type of loan is for you, check out the list below which will give you a better sense of your options.

Unsecured personal loans

This type of loan isn’t backed by collateral (i.e. your car or home) which makes them a riskier option for lenders, and as a result, your interest rate may be higher. An example of an unsecured loan is a PayDay Loan.

Secured personal loans

This type of loan is backed by collateral, which can be seized by the lender if you default on the loan. An example of a secured loan is a mortgage or a car loan.

Fixed-rate loans

This type of loan has a “fixed” (or consistent) interest rate and monthly payments, which stay the same for the lifetime of the loan.

Variable-rate loans

Also known as “floating rate loans,” variable-rate loans have interest rates that fluctuate over time. In general, they have lower starting interest rates than fixed-rate loans, but the rate and payments can change over time.

Debt consolidation loans

This type of loan rolls multiple debts into a single new loan with one fixed, monthly payment and (typically) a lower APR than the rates of your existing debts.

Co-sign loans

This loan is for borrowers who may not qualify for a loan on their own due to no, low, or poor credit. This type of loan requires a co-signer who promises to repay the loan if the borrower can’t or doesn’t pay.

FlexLoan

A FlexLoan is an installment loan that gives you up to $7,000 for anything you need and up to 60 months (5 years) to pay it back. This type of loan is only available to Cashco customers.

By this point, you likely have a clearer idea of which type of loan is for you. The next step is finding a lender who understands your situation and can give you the best rate.

Find the right lender

Before finding a lender, you’ll want to do everything you can to make sure you’ll get approved, including checking your credit score and getting a copy of your credit report.

If you have some time, you can also engage in some credit-building behaviors that will help you get approved, like paying your bills on time, paying down debt, or getting a job with a stable income.

When you’re ready to start shopping for a loan, the best place to start is with your current financial institution, as your preexisting relationship may improve your chances of getting approved or may help you get a better rate. That being said, you should absolutely shop around, ensuring you get the best rate.

Once you have your lender, your loan, and you’ve been approved — congratulations! You’re one step closer to getting the money you need. But before you sign on the dotted line, you must do your due diligence.

Read all loan documents thoroughly

No matter which loan type of lender you go with, make sure to carefully read any loan documents before signing them.

Ask questions if you don’t understand something and make sure you have clarity surrounding these key questions (repeated from above):

● What is the interest rate?
● How will this loan affect my credit score?
● What are my monthly obligations (and can I afford them)?
● What is the approval process?
● What happens if I can’t make my payments?

Ready to make moves? Come into Cashco!

Whether you’re a Cashco customer or not, our experienced associates will work with you to understand your financial situation and will make loan recommendations based on your unique needs.

This article is part of Financial Literacy Month at Cashco. This year, the theme is “Take Charge of Your Finances!” and we’re celebrating by sharing weekly tips around managing money and debt more wisely, saving for the future, and understanding your financial rights and responsibilities.

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