What Are Personal Loans?

With all the talk about personal loans right now, it can be easy to get confused over the general concept and start wondering what this is all about. There are also many misconceptions about the idea of a personal loan right now, and it’s important to address those too. People might sometimes put themselves in a very difficult financial situation simply because they don’t understand the implications of what they’re doing, and they don’t know that better options are available to them.

The modern financial market is actually quite diverse and well-developed, and it’s in your best interest to explore what it has to offer. Many of the services and products available right now have been designed specifically for people in difficult financial situations. Taking advantage of them the right way can often help you avoid financial distress without too much effort.

Basic Concepts

A personal loan is just that – a line of credit for personal use. In most cases you won’t be asked any specific questions about your intended use of the money. This might differ from time to time, but more on that below. After taking out the loan, you’ll have to pay it back in periodic installments. The most common way of structuring those is on a monthly basis, but there are various unique credit products on the market that might work in a different way.

For example, there are shorter-term loans that have to be repaid more often. There may also be options to prolong the period between installments, although those might come with some strings attached. Make sure, for example, that you won’t have to pay any excessive amounts of interest just because you’ve chosen to repay on a different schedule.

Who Is Eligible?

Eligibility for personal loans depends on the organization you’re borrowing from. A bad credit score might prevent you from taking out a loan from some banks, for example, while smaller lending businesses would be still open to working with you. On the other hand, having some sort of good collateral – like valuable property – can often compensate for many issues with your credit score.

If you can afford the risk of putting something up as collateral like that, it’s definitely worth looking into if your credit score is a problematic point. You should also consider options for improving your score in the first place, if you plan on taking out a loan in the foreseeable future. Don’t put this off until the last moment – it will come back to bite you!

What Can the Money Be Used for?

As we mentioned above, personal loans often come with no strict requirements regarding the way you use them. As long as you need money urgently, a personal loan is often a good option if you can qualify for one. However, this might change depending on certain factors, such as how much money you want to borrow to begin with. Larger loans might not have such relaxed conditions to them, and you may actually need to prove what you’re doing with the money. You may even face penalties if you fail to follow those rules!

Be very careful with that part of your contract before committing to a long-term loan, because failing to understand these requirements is never a valid excuse for not adhering to them. Many credit institutions are going to make your life very difficult if they find out that you’ve misrepresented your financial situation when borrowing from them.

Collateral Requirements

We already mentioned this above. Some loans may require you to put up some of your property as collateral to guarantee that you won’t default. Different loans come with different requirements in this regard. Sometimes, something of relatively low value will be sufficient. In other cases, you may have to go as far as putting up your home! It all depends on how much you want to borrow and how fast you plan on paying it back. But you should never underestimate this factor in your calculations, because you can find yourself in a very bad situation otherwise.

Make sure to look up any specific legal regulations associated with taking out a loan as well! You don’t want to find yourself with less money than you originally anticipated to have because you did not realize that you’d be taxed on part of the loan, for example. Some jurisdictions actually have very unusual laws regarding the operation of lending businesses, and the important details will not always be immediately obvious. You can’t expect the credit institution to assist you with interpreting every single one of those laws either, and in most cases you’re simply expected to have educated yourself well enough in the first place. As we mentioned above, failing to do so is never a valid excuse when you find yourself facing legal problems as a result of being uninformed.

Tax Refund Loans – Are They Worth It?

Among the many types of credit products the market offers right now, tax refund loans stand out as more unique. The ease of repaying them – at least on the surface – is a major enticing factor for many borrowers, and tax refund loans have gained strong popularity in many areas as a result of that. However, many people often miscalculate the exact conditions of those products, and end up wasting a lot of their money without even realizing it.

That’s often made worse by the fact that tax refund loans are typically directly marketed to people with a predisposition towards impulse purchases and other similar behavioral patterns. In the end, a tax refund loan is not a bad product by default, but it does have a few points that you need to consider very carefully.

Do You Need the Money Now?

The most important one is whether you really need that money straight away. A tax refund loan is, in the end, borrowing from your own money. This means that you end up paying fees and possibly interest on money that you’re already supposed to have in the first place. You’re only paying for the convenience of having it earlier than other people. And if you really do need that money right now, that’s often a good option.

But if your definition of “need” is related to a new luxury purchase, you should probably hold off on taking out that loan. Sure, you’ll get your money now, but once the novelty of your new purchase has worn off, you’ll be stuck with the realization that you’ve actually lost some of the money you were going to have.

Are You 100% Sure About Your Tax Return?

There’s also the fact that many tax refund loans are based on estimates, but in cases where there’s a difference, the burden falls on your shoulders. If your actual tax return comes out at a lower value, you’ll still be stuck paying off the original value of the loan. After all, it’s not the creditor’s fault either, but they’re the ones who gave you money out of their own pocket in the first place.

As a result, this means that you should work with a good accountant to ensure the accuracy of your tax return, and to know what your safe limits are. But if you’re going to go in that direction, is all of this worth it in the first place? If you can afford to have your tax return done by a professional accountant, then you’re probably not the kind of person who needs a tax refund loan either.

Can You Bear the Extra Costs?

Some people rely on their tax returns quite heavily. If you’re in this category, then you might want to think twice about a tax refund loan. As we said above, the bottom line with this type of loan is that you end up with less money than you originally would have. Sometimes you may not care about that – like if you just need some quick cash to cover an emergency expense, and you are not too concerned with losing a percentage of your return along the way.

In other cases though, taking out a tax refund loan can be the deciding factor in whether you can make ends meet next month. You need to carefully weigh down the pros and cons of getting yourself into this kind of situation, and keep all details about tax refund loans in your head when putting down your signature.

Have You Looked into Alternatives?

Remember that there are usually other options available too. A tax refund loan is a loan in the end, and there is no shortage of similar products on the market if you look carefully enough. Sure, not all types of loans will allow you to get your hands on your needed money as easily as this one, but they might also come with better conditions that will not put such a strain on you financially. For example, an ordinary personal loan might be easier to repay over the same period of time, giving you more financial freedom.

Borrowing from people close to you is also an option, even if you don’t want to admit that to yourself. It’s not always pleasant to have this conversation, sure – but it’s also better to know that you’re not squandering the potential of your tax return. Plus, if it’s just a one-time thing and you don’t see yourself needing this kind of urgent money in the near future, you really don’t have any reason not to go for that. People tend to be more understanding than you might assume, and not having to deal with a loan is always the better option when it’s available to you.