Should you apply for personal loans?
There are many pros and cons of personal loans.
They all come down to how the loan is taken out and how long it is held by the individual. Some of the biggest pros of personal loans are they can help to build credit, they enable consumers to pay off large expenses over time, and they are sometimes used for almost anything.
Many major downsides of personal loans come from interest rates and fees, and even possible credit score damage when things do not go as planned.
Review the terms and conditions (a.k.a high interest rates)
One of the most obvious pros and cons of personal loans is whether or not they make sense for the circumstances of an individual.
In order to make sense, a loan must make sense on its face.
Personal loans can be very useful, but they need to be used correctly. Too often, people take out larger loans that are not needed, pay them back quickly, and then run up more debt. Because of the high interest rates that are involved, this can often be a difficult task.
Think of debt repayment
However, there are several other pros and cons of personal loans that make them appealing.
The biggest one, obviously, is that they are convenient and often allow individuals to handle their finances better. They provide quick access to funds, especially when it comes to bills and debt.
This means that it may not be the right choice if there is not enough available income to support a substantial amount of debt repayment.
Easy loan application; high interest charges
Another pro of personal loans is that they do not involve very much paperwork. The only paperwork involved in taking out the loan is the application and, of course, the check which is returned to the lender.
There are pros and cons of personal loans that include interest charges, as well. Although they are not high, the interest can add up over time.
It is important to remember, however, that if payments are not made on time, interest charges will continue to build.
Consolidate unsecured loans
Consolidating personal loans can also be helpful.
If the borrower has many loans to repay, consolidating them into one loan with a lower interest rate can save a considerable amount of money. Consolidation can sometimes be a good choice for individuals who are looking to lower their monthly obligations. In addition to the lower interest rate, if repayment is done unsecured, this can also save money by eliminating fees.
Some borrowers even choose to consolidate unsecured credit card loans in order to take advantage of the 0% APR that many lenders offer.
The interest rate of consolidation loans can be a lot lower than what an individual would pay by borrowing against their home or other property. The pros of this are obvious; the cons are not. If you don’t pay back the loan amount before the lower or zero rate expires you can be hit with extreme interest rate charges.
Good credit score
If you are struggling with debt and do not have a good credit score, then personal loans might not be the right choice for you.
However, there are options available for people with bad credit. Borrowing from a debt consolidation company can help people with low credit scores to build up a good credit score again.
One last thing to consider is that a personal loan may not make sense if the consumer does not make regular on-time payments.
For some consumers, this is simply not a possibility. However, if the consumer is able to keep up with payments by using a credit card or taking money advances, then this may be a viable option for them.
These types of loans should only be considered when other options have been tried and failed.