Taking on debt strategically and thoughtfully can help us reach certain goals and even build our credit scores. This is especially true of personal loans, which typically get used to fund large expenses, like a home renovation project, wedding, funeral or even a relocation to a new city.
But there's always a risk that our circumstances could change and we can no longer afford to pay back our loan, or we just begin to fall behind on our monthly payments.
Before taking on any form of additional debt, it's important to have a plan in place for how you're going to pay back what you owe. So if you're considering applying for a personal loan in the near future (or if you recently took out a loan), think about these steps to protect yourself from potentially falling behind on payments.
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Sign up for autopay
One of the simplest ways to avoid falling behind on loan payments is to put your bills on autopay. Autopay allows payments to be automatically deducted from your linked bank account and applied to your bill. This way, you don't have to remember to manually transfer money to pay your bill each month.
Autopay can be especially useful when life gets busy and you may accidentally forget about paying your bill one month. Plus, many personal loan lenders actually give you an APR discount for using autopay to make your payments. SoFi and LightStream offer a 0.25% and 0.50% APR rate reduction, respectively, for using autopay. Even if 0.25% doesn't sound like a lot, the money you save can really add up over the life of your loan.
SoFi Personal Loans
Annual Percentage Rate (APR)
8.74% - 35.49% when you sign up for autopay
Loan purpose
Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses
Loan amounts
$5,000 to $100,000
Terms
24 to 84 months
Credit needed
Good to excellent
Origination fee
No fees required
Early payoff penalty
None
Late fee
None
Terms apply.
LightStream Personal Loans
Annual Percentage Rate (APR)
6.49% - 24.89%* APR with AutoPay
Loan purpose
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
$5,000 to $100,000
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
Apply to a lender that allows you to choose your payment due date
Before you settle on a lender, you might consider whether payment due date flexibility is something that's important to you. This would allow you to pick a day of the month that more precisely coincides with when you expect to get paid so you won't have to risk not having enough money to cover your loan payment.
Avoid applying for more money than you actually need
Before you submit your loan application, you should carefully consider exactly how much money you'll need to borrow. For example, if you're taking on a loan to pay for a home renovation, gather all your material and labor estimates before you apply for a loan, otherwise, you're just taking shots in the dark as to how much money you need to borrow.
The more money you need to borrow, the higher your monthly payments will likely be and the more you'll be charged in interest. A high monthly payment can give you less wiggle room in your budget. And while you can sometimes opt for a longer repayment term, a longer term means paying more in interest charges over the life of the loan.
If you need help figuring out the appropriate amount of money to borrow, you could speak with a financial advisor who can help you find a way to finance at least some of your expenses through other means so that you can borrow as little money as possible.
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