How to Get a Personal Loan

While it doesn’t take a genius to figure out that it is better to have money in your pocket than to owe money to a financial institution (all other factors being equal), there are situations where it makes sense to get a personal loan. Sometimes a loan is needed to smooth over a potential financial rough patch or to take advantage of a great opportunity.

I’m not a fan of taking out a loan in order to consume luxury goods. No matter how much you love watching football on Sundays, a big-screen TV is not an essential item. The last time I checked, almost anywhere you can park an RV, you can also put up a tent. Just because your next-door neighbour recently purchased a house-on-wheels doesn’t mean you have try and keep up. Going into debt in order to make an impulse buy, or to wrap yourself in a lifestyle you just can’t afford, is a very poor recipe for success.

Should you get a personal loan?

Before you apply for a personal loan, you should create a plan and examine all of your options. Perhaps another credit option such as a line of credit might be a better fit for your particular needs? Maybe you don’t need a loan at all, but instead need to look at trimming other areas of your budget and saving up for a large purchase over time. If you need to take out a personal loan to purchase a necessity, then make sure that is what the money is used for, and not another item or expense that is unplanned.

Once you have created a game plan for your personal loan you should put some effort into comparison shopping. Canadians have developed some bad habits when it comes to looking at their banking options. We tend to go with the path of least resistance – a short walk down to our usual bank branch, where we accept whatever “special” our bank has going on at the time. While you can leverage your loyalty to a financial institution to get a better deal for yourself, you need to at least be aware of what other offers are on the market.

You shouldn’t put less time into looking at the details of a personal loan than you do picking out new running shoes or a toaster. These days, comparison shopping is easier than ever. Simply go online and check out one of the various sites that compares the offerings of several Canadian lenders. You can choose to go in a better direction with your banking business, or you can use the information when discussing loan details with your usual bank or credit union.

Get a personal loan that’s right for you

Before looking at what sort of interest rates are available, you should consider what sort of risk you are as a borrower. This will help determine just what types of personal loans banks and credit unions will offer you, in addition to the amount of the loan in question. One of the major factors that banks look at when granting personal loans is your credit score.

Your credit score is basically a report card on how well you have done in the past when it comes to borrowing money, paying back those debts, and if you have ever failed to pay any bills. The better your banking report card, the less risk you are to the lender when you apply for a personal loan. The less risk you are, the better terms you can demand. Other facts a lender will take into consideration often revolve around your employment status and any assets you might be willing to “put up against the loan” as collateral.

If you have a relatively high credit score (you can find out what your credit score is at any time from TransUnion or Equifax) and don’t mind doing a bit of research and negotiating, you should be able to save yourself a substantial amount of money and get a very competitive loan in today’s low-interest environment.

Depending on the size of the personal loan you are applying for, a percentage point or two on your interest rate could make a big difference in your bottom line. Don’t be afraid to look around or ask your customer representative any questions you may have. It shouldn’t be an intimidating process to get a personal loan and you should understand the terms of your agreement before you sign any dotted lines.

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