How a personal loan for moving expenses works
A moving loan (or relocation loan) is usually a fixed-rate personal loan that is paid back in monthly installments. There are two types of personal loans -- unsecured and secured. An unsecured personal loan means you don't have to put up collateral for the loan. A secured loan requires you to put something of value up as collateral.
Pros and cons of personal loans
If you're considering a personal loan to pay for a move, it's wise to weigh the pros and cons.
Pros
- You may be able to borrow the entire amount required to pay for the move.
- Since personal loans may be secured or unsecured, you can choose which type works best.
Cons
- You'll pay interest on the loan, and if your credit score is low, your interest rate may be high.
- Your household budget will include a new monthly payment.
- If you opt for a secured loan to qualify for a lower interest rate, you risk having the asset used as collateral repossessed if you miss payments.
Based on these points, take the time to decide whether taking out a personal loan to cover the cost of a move is the right move.
Getting a low-interest moving loan
As with all loans, the goal is to land a low interest rate and attractive terms. Here are some factors determining the kind of loan you'll be offered.
Your credit score
The higher your credit score, the better your odds of landing a low interest rate. If your credit score is low, consider boosting it before applying for a loan.
Employment and income
Lenders will ask for proof of employment status and income. They want assurance you can afford monthly payments.
Secured or unsecured
When you take out a secured loan, you put something of value up as collateral. While you'll probably snag a lower interest rate with a secured loan, you risk losing the collateral if you miss payments.
Your repayment timeline
Lenders consider longer-term loans riskier because there's more time for things to go south. Lenders tend to offset the additional risk by charging a higher interest rate. The workaround is to choose the shortest loan term you can afford to repay.
How to apply for a moving expenses loan
Here's how to apply for a personal loan:
1. Check your credit score
High credit scores give lenders enough confidence in your ability to repay that you're rewarded with lower interest rates and loan fees. Before moving forward, check your credit score and order a copy of your credit report. If your score is lower than you'd like, take steps to raise it.
2. Decide how much you want to borrow
Determine how much you'll need to cover the cost of the move.
3. Rate shop
Check several lenders, and remember: interest rates only tell part of the story. Also consider the APR, which includes interest, fees, and other charges. Remember that your credit score may dip slightly if a potential lender conducts a hard credit inquiry during the prequalification process. However, making regular, on-time payments will help your score rebound.
4. Decide on a lender
Complete a full loan application only after you've shopped lenders and know which offers the lowest APR and best repayment terms. Once approved, it's essential to read the loan agreement and ask questions of the lender if there's anything you need help understanding. Sign the loan agreement, await loan proceeds, and prepare to make your first payment approximately one month later.
