Personal Loans

Small personal loans are a growing type of loan that banks are finding more demand for these days. While unsecured loans are not as profitable for banks as credit card products are, they make more sense to the consumer because the interest rate on the loan is likely going to be less than it would if using a credit card.

But consumers need to be very careful on how they use the personal loan, just as they need to be diligent when using a credit card. Some common sense–but not practiced as often as they should be–rules to follow when taking out a personal loan include:

1. Making sure that you pay the loan back according to the terms. A small personal loan can turn into a large loan if you don’t.

2. Shopping around for the best rate. Don’t just accept the terms you receive from the first place you visit. A good place to check out when doing your due diligence is Bankrate.com’s personal loan search engine.

3. Don’t just go to a quick payday loan center. Your bank, credit union (which often has better rates than banks and often provide terms more favorable to the consumer), or financial institution may may offer better rates, and your relationship with your own financial institution may help improve the rate you ultimately get.

4. Figure out how much that borrowed money is going to cost over the long haul. Just because one financial institution or lender allows you to pay less each month doesn’t mean it’s the best deal. Actually, it’s probably a worse deal, because you’ll pay more in the long run.

5. Make sure you read everything in the contract. Don’t take the loan officer’s word without reading the contract first.

6. Don’t open a new credit card simply because the loan officer tells you that’s a better option. It may be for them, and not necessarily for you.

Credit card rates vary, and what you pay when you open the card may not be what you pay down the road. Whenever you use your credit or take out a loan to pay for smaller expenses, make sure you’re thinking about the future payments of that loan. If you’re shelling out $2,500 for an unforseen expense, you don’t want to end up paying $3,500 just for convenience. Do your due diligence first. A few minutes spent up front could save you thousands in the long run.