PERSONAL LOANS: BORROWING SMART

Somewhere between credit cards and home loans lies that gray area called personal loans. Normally you would find them at the store where you bought your washer, dryer, refrigerator or sectional sofa. Lending institutions offer personal loans as well, which come in two basic formats.

LUMP VS. LINE

The first is lump sum, where you borrow the entire amount up front. It is paid back on a schedule and at a fixed rate. Perfect for folks who don’t like unpleasant surprises, i.e. rising interest rates, down the road. The second is the line of credit, which is paid it back at an adjustable rate, and with no set payment schedule. Perfect for those who believe interest rates will have dropped by the time they start paying back. The drawback on line of credit line personal loans is, like your credit card, you could be paying it back for many years before you even touch the principle- the actual amount you borrowed.

Experts on personal loans say that no matter which you go with, figure out precisely how much you need, to the penny, instead of guestimating. You may get a bigger loan than you actually need, thereby increasing the burden of your debt. Also, figure out a payment schedule beforehand so you know exactly when it will be paid off. Finally, shop around. Credit unions usually have the edge over banks. Take your time before deciding on what personal loans are best for you.

ABOUT THE AUTHOR:

Carl Dupre is a successful writer who lives in Rhode Island with his wife and two children.