Personal loans 101: What to consider before borrowing

Personal loans can be used for almost anything, and they can be beneficial for various circumstances. Are you contemplating if a personal loan is right for you? There are dozens of factors to consider, like why you need one or the financial obligations. We’re breaking down the basics of a personal loan, its uses, and how to determine if you can assume the responsibility of taking on another loan.

What is a personal loan? 

Personal loans are unsecured loans, meaning they don’t require collateral. They are borrowed in a fixed amount from a bank or credit union and are repaid in monthly installments. Unlike mortgages or car loans, they can be used for numerous reasons, like financing substantial expenses, debt consolidation, holiday shopping, and more. Lenders approve borrowers based on a few factors, like credit score and debt-to-income ratio.

How can I use a personal loan? 

Personal loans can be used for countless purposes, but here are a few common uses:

Debt consolidation

Many people use personal loans to consolidate high-interest debt—debts with higher interest rates, like credit cards, are consolidated into one loan with a lower interest rate. This makes paying off debt easier because it’s one loan to keep track of on a set repayment timeline, rather than paying off multiple credit card balances. Using a personal loan to consolidate debt can also boost your credit score because it can lead to lower credit utilization and more on-time payments—two notable factors in determining your credit score.

Home improvements

Personal loans are also popular for completing home improvement projects. Because personal loans are unsecured, they require no collateral—unlike home equity loans, which use your home as collateral if you can’t pay back the loan. With a personal loan, you don’t risk losing your home, but that also means the interest rate is higher. Funding is also quicker—you can receive the funds in as little as one day after approval.

Holiday shopping

As previously mentioned, personal loans mean fast funding—which is why they’re frequently used for holiday shopping. Many people find that it’s easier to take out a personal loan to take care of holiday gift-giving for several reasons: interest rates are significantly lower than credit cards, and the loan repayment is easier because it’s one payment. It also helps you stick to a budget by only spending what you borrow. Personal loans for holiday shopping are recommended if you have good credit and are confident you can repay the loan.

Am I eligible for a personal loan? 

Not everyone qualifies—if financial institutions lend to everyone, that’s a huge risk not only for them but for you as well. You should only take out a personal loan if you are positive you can pay it back. When applying, a few factors are considered: credit score, credit history, and debt-to-income ratio. But, your credit score is just the starting point—even though you might have a high credit score, that doesn’t guarantee you’ll qualify. Lenders also look at credit history—having an extensive credit history shows lenders how diligently you’ve made payments. Borrowers with multiple credit cards, a mortgage, or a car loan with regular, on-time payments may be more likely to qualify. Debt-to-income ratio, based on how much of your income is going towards paying off other debt, is also a significant factor. If your debt-to-income ratio is less than 35%, you may be a good candidate.

What should I avoid? 

Taking out a personal loan does assume some risk, and there are a few things you should work to avoid—the most critical being defaulting. Defaulting on a loan means your payment is at least 30 days overdue, and it can severely damage your credit score. Defaulting can also stay on your credit report for several years and impact your borrowing power down the line. Another mistake people make is using a personal loan as a source of income—taking out loans to generate income and paying for daily expenses can quickly spiral out of control, and you’ll be drowning in debt before you know it. Lastly, borrowers often neglect not budgeting for a new loan. We know budgeting takes a lot of time, but it’s critical to know how much you can afford to pay per month and how much you can borrow.

While personal loans can be risky, the good outweighs the bad, and they can be a valuable tool when used properly—they can reduce your debt, raise your credit score, and even increase your equity if you use them for home improvements. With rates as low as 6.74% APR*, if you need to consolidate your high-interest debt or simply need extra cash flow, a personal loan from Georgia’s Own may be for you. Click here to learn more about our Lifestyle Loans or apply today.

*Your APR may differ based on your credit worthiness and could be higher than the stated rate. Please ask a loan officer for details on how your rate is determined.

Is now the best time to find a new job?

The last few years have brought about a myriad of changes for everyone in a number of ways. Many people found themselves without jobs, changing roles at work, or adjusting to working from a home office. While some change is unavoidable, you may have found yourself wondering if now is the best time to find a new job. Read on for some things you should consider before taking the next step.

Know your reasons

Why do you want to leave your current job? Is the commute too far? Does your boss have it out for you? Are you just tired of your industry? Determining your “why” can help you decide if you need to make a big change. If you’re overworked right now because your job is in its busiest season, give it a few weeks and see if you still feel like quitting after your workload has eased up a little. The phrase “never quit on your worst day” is a good one to keep in mind for this decision.

Decide where to go next

A paycheck is a paycheck, even if your work is really starting to weigh on you. This means that you are certainly free to look for a new job but take the time to consider where you want to wind up at the end of your search. Are you looking in an entirely new field? Are you hoping to stay in the same city? These practical answers can help you achieve your career dreams and allow you to make a more informed choice.

Wait for an offer

Working at a job you hate is really hard—but it’s not as hard as suddenly going without a regular paycheck. We are all for the idea of you seeking a new place of employment, but you should have a solid offer in place—in writing—before you actually give your two weeks’ notice. Even if a job is offered to you by your best buddy, they need to provide an offer you can sign before you make any final decisions.

Check on your budget

By now, you’re probably a budget expert. You know what you’re bringing in what’s going out, and how much is left over. Before you decide to change everything up by taking a new job, review your budget to make sure you understand how much you need to bring home to maintain your current lifestyle. You should also factor in the possibility of a gap between your last paycheck at your old job and your first paycheck at your new job to make sure no necessary expenses will go unpaid.

Make a goal

We talked about knowing why you want to leave your current job, but it’s also important to know what you expect out of your next job. Many people have an ideal job setting or career in mind that may exist somewhere, but that doesn’t mean your dream job is hiring. Make some small, measurable goals that you want to achieve through this new job and look for employment that will set you on the path to making your hopes a reality.

Recognize the requirements

Let’s say you’re a dancer who has always dreamed of being a teacher. You have skills in multiple areas, and no one can do an arabesque like you can. But before you fully commit to this change, make sure you know exactly what is required of you to start your new career in the classroom. This is true across all industries—many jobs require specific education, certifications, or test scores (or all three) before you can be eligible to even apply for a new position. Knowing the requirements will help make a realistic plan.

Talk it out

We don’t recommend shouting about your job search from the rooftops. But you might consider talking to a trusted friend (ideally one who isn’t a coworker) about your career change. You could also look into speaking with a career coach or counselor who can help you decide what job would suit you best, along with giving you an understanding of what type of salary and benefits you would be looking at. Being prepared is always a good step to take before making a big decision like this.

Check out the benefits

Does your current job provide the health benefits for your family? If so, you will want to look at the benefits a new job can offer you to make sure you have all your needs covered. Take an extra-close look at your potential new insurance to see if it covers the specialists and potential procedures you or your family could need. Of course, you will also want to make sure the pay is comparable (if not better) to ensure your budget needs are still met.

Finding a new job can be daunting, but it can also be done! Work smart and put in the time it takes to not only find a new job, but to find the career and environment that will allow you to grow until you retire.

Ready to start your next career? We’re hiring! Click here to see how you can become one of Georgia’s Own.