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Taking out a loan can do both good and bad things to your credit score. A loan may be beneficial in the sense that it will add more to your credit history, which could help improve your score and your future chances of getting a loan. But it is also a fact that it can have a negative impact on your credit rating since every loan application results in a credit inquiry which can bring your credit score down by a few points.
Advantages of a Loan
One clear advantage of getting a loan is that it can add variety to your credit history. It works in your favour when your record shows that you have taken out different credit types before and you have managed them extremely well. This creates the impression to future lenders that you are trustworthy finance-wise.
It is a chance to establish a payment history. A huge chunk of your credit score has something to do with the payments that you have made under your name. Whether it is for your utility bills or for loans you have taken, ensuring that you have paid these obligations on time will always earn you some brownie points in the eyes of a lender.
Possible downsides of a loan
One drawback to taking out a loan, where your credit score is concerned, is that it will pull your rating down a few notches. When you apply for a loan, it is the standard operating procedure for lenders to have to make a credit inquiry and this can cause a dent on your score. This is also the reason why people are advised to space out their attempts at borrowing for several months so as not to appear too desperate for a loan to lenders.
When taking out a loan, you’ll find that how you manage it once it is approved is what really matters in the long run. As long as you diligently get your payments made on time, you can trust that it will help you build a better, more positive credit score.
When you borrow money, expect that there are always extra costs attached to it. Not only are you subjected to interest rates, there are fees and other charges that lenders enforce too. There are even loans that could hit you with extra fees if you decide to pay it off early. This is why if you are considering the possibility of paying your debt early, know what exactly is going to happen first.
Things to consider about cash loans
When repaying your loan, there might come a point where you are earning more than enough to get it paid off before its actual term. However, before you start getting those extra payments made, take the time to look into your loan agreement first. Most of the time, it will include provisions about repayment conditions which lenders will enforce if you get a loan paid off before its term.
You'd think that lenders would be happy when borrowers decide to pay them off earlier than what was agreed. However, they make a lot of money off of interest. This is why, they will not be too keen on you paying off the loan early because they would be losing money on interest that you were supposed to pay them if you stick to the term. This is why some might enforce penalties.
The amount that lenders are likely to penalise you with if you pay off a loan before its intended term can vary from one lender to the next. Oftentimes, it would be based on whatever the remaining loan balance is. Sometimes, it would be based on the worth of the interests. Since there is no set amount on prepayment, so knowing the difference cost-wise is essential.
Temporary credit score dip
When you pay off a loan early, you are closing an account. This can cause your credit score to take a hit which might hurt your chances of better credit deals in the future. This is why it might work to your advantage to just leave the loan as is and pay it off until it reaches its full term as active and open accounts can have a positive effect on your credit rating.
Alternatives to early payment
If you can, negotiate with your lender the loan terms and ask them to get the penalties for early payment removed. If they will not budge though, you can try refinancing the loan with your current lender. You may also refer to other lenders and float the idea of refinancing with them. You can also just proceed with the prepayment provided that the penalty will be worth less than what you would end up spending if you were to continue with the loan term.
Frequently Asked Questions
Must I Have A Guarantor?
Usually, lenders would require a guarantor for borrowers with poor or no credit history. A guarantor will serve as an added security if in case the borrower defaults on the loan. Since unsecured loans don’t have collateral, it is an added risk for lenders. However, if your credit is in good shape, lenders will often approve you without having a guarantor.
Is there complicated requirements I must provide?
No. The application process is simple and straightforward. All you need to provide is your personal information, proof of income, and employment verification. You also need to provide your checking account information where the money will be sent to. Other than that, you don’t have to provide any complicated documents or requirements to get approved.
How Fast Can I Have The Funds?
The entire process can be completed in as fast as 15 minutes. Getting the results of your application will only take a few minutes. So you don’t have to wait hours or even days to get approved. You can have the funds immediately and we’ll send you a notification once everything is good to go.
What If I Miss My Payment?
We understand that such things could happen. While some lenders may be lenient for one or two months, however, missing your payment could result in serious consequences. It could affect your credit badly and the lender may incur additional charges or fees as penalties for late payments.
You will receive the payment through direct transfers immediately to your checking account. Once approved, the money will reflect on your account within seconds. You will receive a notification once your application results are in.
Got questions? Let us know.