A personal loan is an unsecured instalment loan though they are small loan. The repayment length of these loans is not more than 18 months, depending on the amount you are borrowing and your current financial circumstances. As they do not involve the risk of losing security, most of the borrowers get tempted to find them. You get money to be repaid over an extended period of months, and that is all.
Undoubtedly, they may outweigh the benefits of others. The thing is that they are not like a piece of cake that you jab your folk in and pop in your mouth. Loans are loans, and collateral is not just the only thing you should fear losing.
You are to pay interest on top of the principal; if you fail to meet your obligation, you will lose your credit score, and unfortunately, this will also affect your credit rating. Further, this will increase complications next time when you apply for any type of loan, including small emergency loans. Taking out a loan is not a joke, whether it involves collateral or not.
Personal loans are usually big loans. In some cases, the repayment length can be up to two years or more. Even though your current financial condition is good, there is no surety that you will get it will remain sound throughout the repayment period. Therefore, it is vital to analyse all factors carefully before you borrow money.
How to decide if a personal loan is actually the perfect choice
Here is how you can decide whether personal loans actually make sense:
- Interest rates
It is interest rates that make a personal loan expensive or affordable. The higher the interest rate, the more money you pay in total and vice-versa. Therefore, it is suggested you should carefully research the market rates.
They vary by lenders. Since they are unsecured, interest rates could be between 11% and 15%, and if you seek a personal cash loan with bad credit in Ireland, it can go up to 25%. Because you have got a lender offering an 11% interest rate, it does not mean you will apply to them.
Though your priority will be choosing a lender with the most affordable interest rates, you will have to see what you can actually afford. For instance, if you are being charged the lowest possible interest rate, say 10.95%, are you sure that you will keep up with payments?
Even if the term of the loan is not more than six months, life can throw a curveball. You must know you will not miss any payments. Because if that happens, it will cause wreak havoc on your finances. An online loan calculator should determine the estimated monthly payments and total cost. Assuming that your actual payments will be higher, you should check if your budget has the potential to pay back the money. If not, the answer is simple. You should postpone the idea of taking out a personal loan.
- Repayment length
The term of the repayment is actually very important when it comes to deciding if it is suitable to take out a personal loan. Monthly instalments are based on the amount you borrow and the length of the term. The following table shows how the size of monthly payments varies as the repayment length changes.
| Borrowed amount | €3,000 | €3,000 |
| Repayment period | 1 Year | 2 years |
| APR | 9.9% | 9.9% |
| Monthly payments | €263.02 | €137.71 |
| Interest payment | €156.23 | €305.09 |
| Total amount to be paid | €3,156.23 | €3,305.09 |
Some lenders may put you on a longer repayment plan seeing your current financial condition as this whittles down the monthly payment, and it is more affordable, but when you look at the total cost of the debt, you find it is much larger.
You do not have just to see the size of monthly payments, but you also need to look at how much you are paying in total. Use the loan calculator to determine the appropriate length of the debt. Even if a lender puts you on a longer repayment period by making an excuse for your current financial situation, you should insist on them not to do so because many lenders do it to make profits.
- Debt-to-income ratio
Most of the time, you emphasize credit scores to get a personal loan at the best possible interest rates. The higher the credit score, the better the interest rates will be. Do not forget that a lender will look at the current debt you owe as well to check your repaying capacity.
The debt-to-income ratio tells how many portions of your monthly income go toward your existing debts. The rest income will be used for your monthly expenses, including personal loan payments. If your budget seems tighter, your lender will charge a higher interest rate as you seem a riskier borrower.
Although experts warn against having it more than 30%, you should try to keep it not more than 10% as this maintains your credit score within a good range and helps you get the loan at a lower interest rate.
Wrapping up
Personal online loans in Ireland may or may not be the right choice for you. It is not so easy to determine it. You will have to analyse what you can do about it carefully. Check for interest rates, repayment period, and debt-to-income ratio. Consult a financial counselor who is ready to help you with it.
