Personal loans can be used for any number of reasons, and give you funds when you need them most. If you’re considering applying for a personal loan, there are a few things to keep in mind. So let’s go over the pros and cons of personal loans.
Pro: You Have a Lot of Options
When it comes to personal loans, you actually have quite a few different options. First, there are plenty of lenders to choose from, so you can carefully compare loans, rates, and payment schedules based on your needs and wants.
You also can choose from different amounts. Depending on what you need it for, you can apply for the amount you want (but you still need to be approved for it!).
Con: There Is a Potential for a High-Interest Rate
Although personal loans are usually advertised at a very low rate, that is not always the rate you will be offered personally. In some cases, the interest rate can be higher than you expected, which makes shopping around a must.
Pro: Good for Debt Consolidation
Do you have a few loans or a lot of credit card debt on your hands? Whether they’re from student loans, previous personal loans, or several credit cards, you may want to consider this option for debt consolidation. It can help you get a single interest rate and payment, rather than having to juggle several loans and remembering what payment is due when. This is especially the case if you have high-interest loans and want another option.
Con: There Are Scammers
Unfortunately, there are quite a few scammers when it comes to personal loans (or anything that involves money really) so you need to carefully vet who you borrow from. Ensure your lender is accredited, and also check to see if they’re registered if your state requires it. Don’t ever accept a prepaid debit card or similar things.
Pro: Payments Stay the Same
With credit cards, minimum payments can vary from month to month. However, with personal loans, your payment is always the same. You can budget exactly for what you need every month with no surprises. Many loans even allow you to choose what amount you’d like to pay each money when you sign up based on your repayment schedule.
Con: Payments (and Interest Rates) Stay the Same
Although it can be a positive, payments staying the same could also be a negative. If you’re short on cash one month, you still have to make that entire payment. You cannot change the amount you pay.
Interest rates will also stay fixed. (Fixed rates are more common than variable rates for personal loans). This means if you improve your credit down the line, you can’t get a different interest rate on this particular loan.
When opting for a personal loan, you need to take your individual situation into account. A loan that works for your neighbor may not be the best choice for you. These pros and cons of personal loans will give you a good starting point when you begin to consider your options.