A personal loan can be used for various purposes, such as debt consolidation, for weddings, home improvement projects, and medical bills. Typically, personal loans are paid over a shorter period of time with monthly installments and fixed interest rates. But, there are some personal loans with variable interest rates. You can obtain a personal loan from online lenders, banks, credit unions, but keep in mind that qualifying for a personal loan is based on your credit score, among other factors. The real question though, is “What are the advantages and disadvantages of personal loans?”
The Advantages and Disadvantages of Personal Loans
Before taking on a personal loan, one should:
- consider the impact of taking on a personal loan,
- calculate the financial costs, and most importantly
- do the research.
To properly make a decision, you really need to know the disadvantages and advantages of personal loans. Here you will find an overview of the main pros and cons of personal loans.
Personal loans are versatile and can be used for many purposes. You can pay for:
- unexpected car repairs,
- needed renovations,
- consolidate your debt, etc.
It can be a decent option when you don’t have any savings or an emergency fund to cover your expenses. One can use a personal loan to pay off one-time expenses.
If you’re looking to take on a personal loan, it’s a good idea to check out sites like bestpersonalloans.com where you will find detailed information about:
- personal loans,
- the application process, and
- what you should know before you apply for one.
Also, as there are many lenders that offer personal loans like banks and online lenders, you can read more about what are the top options for a personal loan.
Quick Application Process
When looking into the advantages and disadvantages of personal loans, this is often the biggest advantage – its quick.
Generally, personal loans are smaller than other types of loans like home equity loans, which require a couple of months to be approved, while personal loans can be approved fairly quickly. If your application is approved, then it’s possible to access your money within a few days.
Unsecured Personal Loans
Although there are secured personal loans, which means they are backed by collateral like your car or your house, there also many unsecured personal loans that don’t require collateral. This makes unsecured loans a viable option for people who don’t have valuable assets.
Before you take on a loan, keep in mind that you have to meet the deadlines of your monthly payments. Otherwise, if you miss payments or you’re late with your monthly payments, you can face many consequences like:
- a lower credit score,
- getting sued for nonpayment of your debt, or…
- if you have a secured personal loan the lender might seize your assets.
If you pay the full balance when you can afford it before the term is up, then based on the conditions of your loan, you might be charged with prepayment penalties.
A lot of banks may charge prepayment penalties to make up for the interest rates they will be missing out on if you pay back your loan early. This is an important factor to keep in mind when you’re comparing different options up front.
Many personal loans have origination fees that are intended to cover the cost of processing the loan. You could find yourself paying between 1 percent to 8 percent of the loan amount. Keep in mind that you need to pay this amount upfront when you receive the loan.
Advantages and Disadvantages of Personal Loans – Are They Right For You?
Typically, people don’t want to get loans, but they can be a decent option if you find yourself in a pinch. In other words, if you need something, but don’t have the money, a loan is the typical remedy. Just remember to only borrow what you need and have a plan for paying it off.
Review the advantages and disadvantages of personal loans above and make your decisions wisely!
AUTHOR LaTia Longuemire
My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.