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Understanding Personal Loans During COVID-19
It seems like so many things have changed during COVID-19 – our jobs, our schooling, our lifestyles. It shouldn’t surprise anyone to know that banking and lending practices have changed a bit also. COVID-19 has changed how many of us view our finances, and for some, this might be the right time to look a bit harder at personal loans to help you navigate the financial waters of our current COVID economy.
Why a Personal Loan?
Personal loans help to cover a lot of ground in your personal finances. Unlike mortgages or car loans, personal loans are not tied to assets like a home or vehicle. They are essentially an installment loan that can be used for almost any purpose. That makes them ideal for certain things during a time of financial uncertainty.
This is, perhaps, not the time to take out a new personal loan to plan an epic vacation across the globe – mostly because many countries have closed their borders to tourists at the moment – but a new personal loan can definitely help bridge some other financial gaps that might be happening in your life right now.
- Increased tutoring or childcare costs – If you have children, working from home can wind up being double-duty. You can’t take care of an infant or toddler and be online for meetings all day. Older children may be doing school from home and you certainly can’t sit with a second grader and your boss in the same call. Parents who need help in the home with tutors or babysitters or those who are paying more in childcare costs may need extra cash. Childcare can become very expensive, very quickly, and hopefully this will be for only a limited time.
- Medical procedures – This is not a good time to have a medical condition that may land you in the hospital. If you’ve been putting off a voluntary medical procedure due to expense, this might be the time to get it taken care of in a controlled setting of your time and choosing. Emergency rooms aren’t the place to be right now if you can avoid it. Be proactive with your health, and a personal loan might help.
- Pay off credit card debt – If you have expensive credit card debt, a personal loan can help you consolidate the debt so that you are paying less every month. Take out a personal loan, pay off the credit cards with the higher interest rates and then make a single payment every month to eventually clear the debt completely. This might help clean up your finances and make some financial breathing room every month.
- Increase your emergency fund – Speaking of breathing room, if you don’t have much in the way of emergency savings, a personal loan can help fill your savings account just in case. There are many expenses that come our way when we are least expecting them, and if your job has cut back a bit or you aren’t working the overtime you’re used to, bills may be getting tighter. A healthy emergency account can buy you peace of mind. Just be sure you’re able to make the monthly payments on the loan.
Applying for a Personal Loan during COVID-19
Banks have shifted their lending standards a bit during the pandemic to protect themselves during a period of financial uncertainty. If you apply for a personal loan, it’s important to know what to expect during the process.
- Bad credit loans are still available. While banks have jumped a bit on what constitutes “poor credit”, there are still loans available for those with a FICO score less than 600. You might just have to shop a bit to find one with a thin credit file.
- Income may be more important. Many personal loan offers relied heavily on FICO score. With tighter lending standards, proof of reliable income has become just as important as a credit score. Some lenders may request your W-2s, paystubs or other proof of steady income before offering you a loan.
- Debt to income is a factor. Lenders will also be assessing your debt-to-income ratio, or DTI. This ratio shows how much debt you have in relation to your actual income. Many lenders require that your debt payments be no more than 40 to 50% of your income. If your ratio is higher, consider paying something off before applying.
- Expect different things with different lenders. Every lender has its own guidelines and rules for personal loans. Traditional banks will have the tightest lending standards and online lenders have the most flexibility. Shop around to find the best option for you before applying. Many lenders offer pre-approval with only a soft credit check, which won’t harm your credit.
COVID-19 has proven to be a challenge for many who are trying to navigate these uncertain times. If you have a steady income but are still facing financial challenges, personal loans can help you bridge that gap until more typical times return.
Install a programmable thermostat
You don’t even have to suffer much to turn the thermostat down or up if you have a programmable thermostat that does the job for you. Install a programmable thermostat and set it to be comfortable when you’re home and less comfortable when you’re gone.
Appliances are always drawing on power. If you have multiple things plugged in that you never use, or hardly use, unplug them until you do. This will eliminate the trickle charge of electricity that is happening and hopefully reduce your energy bills a bit.
Install ceiling fans
Ceiling fans might be a bit expensive to buy initially but installing ceiling fans can save you significantly on your electricity bills. A ceiling fan can help move the air in your home, allowing you to turn up the thermostat in the warmer months and save energy.
Buy a space heater
A little space heater might be all you need to stay warm this winter if you spend most of your time in only part of your home. Turn your heat down significantly in the home, and then supplement by plugging in a small, lower energy space heater when you’re sitting in your chair or working at your desk.
Sell your vehicle
Have public transportation nearby? Get rid of your vehicle. Cars are very expensive to own and you can save the car payment, the gas payments, the insurance payments and maintenance expenses if you are able to ditch the car. If you don’t have public transportation, consider downgrading your car to one that is cheaper and costs less to own – especially if you’re just driving to and from work.
Sell extra vehicles
If you have an extra car, or other large items like a vehicle including a camper or boat, consider selling those to free up monthly payments. You will have less to pay every month and less to insure which will help boost monthly savings as well.
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Carpool to work
You need a car, and you need to get to work. Is anyone in your area heading the same direction? A carpool will help you get where you need to go, and it will cut your gas bill tremendously. Two of you carpooling? Your bill is cut in half. Four of you taking turns? You pay only a quarter of what you were paying.
Refinance your house
A big change you can make to lower your bills is to consider refinancing your home. Your monthly mortgage payment is likely the largest one you make, and if you can lower the bill, you can see big savings. Lowing your interest rate a couple of points can potentially save you hundreds of dollars per month.
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Cancel club memberships
How many clubs are you part of? Your kids? If you’re paying $5 – 10 for various memberships every month for online games, subscription boxes, and more, you are likely wasting money. $10 might not seem like much, but if you and your family are part of 5 different programs, you’re spending up to $50 on things you may not even use every month.
Cancel streaming services
If you haven’t already cut out cable, do it. But then consider the number of streaming services that you have available. At more than $10 – $20 per service, you’re still spending a lot of money to watch television, especially if you only have the streaming service for a single show you follow. Consider canceling the service when your show is not running, or just paying for the season of the show instead of streaming. It may be far less expensive.
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Shop around for insurance
When is the last time you shopped around a bit for insurance? If you’ve had the same insurance company for years and you haven’t shopped for new rates on home or auto insurance, it may be time to consider doing so. Bundling services can also lower your monthly payment as well.
Raise your deductible
Insurance rates move with the deductible. The higher your deductible, the less you pay for your monthly insurance. Consider raising your deductibles, especially if you don’t drive a daily commute, so that you can save a bit every month on something you already have.
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A final option is to consider moving to a less expensive area. You can often move less than a mile or two and find yourself in an area where housing costs are less or commuting options are better. A big move can save you quite a bit more if you move away from expensive city centers and into a more medium-sized city or satellite community. Just be sure the home savings is more than the increased commuting costs.