Personal loans are loans with no restrictions and you can use them for any of your needs such as vacations, weddings, car purchases, bills, etc. That makes it really popular among borrowers helping them with their needs or wants.
Approval factors for a personal loan are determined by things such as income, credit score, credit history, and other personal information due to it not having any collateral backing the loan.
In most cases, personal loans are a little bit higher in interest rate making them not ideal for most uses but more convenient for other uses.
How does a personal loan work?
Personal loans are pretty simple when you apply for a loan you ask for an amount to borrow from a lender and in return, you agree to pay back the lender with an interest rate and some fees attached to a payment that you pay over a period of time.
In comparison to other loans you are not limited to spending the money on one item, you can use the loan for things such as debt consolidation, vehicle purchase, home improvements, starting a business, boat purchase, medical expenses, and much more without any major limitations.
Is getting a personal loan a bad idea?
Personal loans are not inherently negative they can help you with many aspects of your life making it less stressful.
But there are many things you can get a personal loan for making it a more dangerous loan for individuals that are not as careful and spend the funds on items or goods.
When getting a loan be sure to consider what the loan will be used for and if it’s a want or a need and whether are you able to pay back the loan on time protecting you from defaulting on your payment and hurting your credit. I will list a few reasons why most individuals get a personal loan.
Debt consolidation: To cover or consolidate your debt would be a great idea to get a personal loan because you’re using a lower interest rate debt to cover higher interest rate debt such as credit cards helping you save money.
Something to consider when getting a loan to pay off your debt is to make sure the loan is a lower interest rate than the loan you currently have.
Pay for emergencies: Life sometimes gets the best of us with car breakdowns, appliance failures, or home improvements.
There would all be great ways to utilize a personal loan to help you get your car back on the road, buy a new heater system, or finally make improvements to the house you always wanted.
When getting a personal loan, consider other options such as savings or borrowing because it’s always better to be debt free and shop your loan options.
Improving your credit journey: It’s no secret the best way to improve your credit score is to use it. Getting a personal loan and making timely payments towards your loan will help your credit score grow.
This also helps you build your credit history which shows lenders that you have been making timely payments back on the loans you borrowed showing them that they can trust you much more with their loan products and in some cases give you much more favorable terms in the future.
When paying off a loan on time the record of that will stay on your credit history for up to 10 years and is one of the main factors that lenders look for when giving loans out to individuals.
Bad reasons to use a personal loan for.
Loans are a great tool when you utilize them properly but there are a few reasons when to reconsider getting a personal loan.
Can’t pay it back: If you are in a tight spot and just need some extra cash to get you by for a couple of weeks, it might not be the right place to get a personal loan.
If you are struggling to make your current payment adding another one might not be the smartest move because if you are not able to pay back the personal loan it will hurt your credit and in some cases, a loan can be sent to a collection agency making your situation much more then to begin with.
Before getting a personal loan be sure to have a plan in place on how you will end up paying it back.
Other options available: To solve a problem you don’t always have to get into debt, be sure to consider all the other options such as borrowing from a friend or a family member.
Utilizing your savings account, taking a small 401k loan out, picking up an extra shift, or getting a second job. There are many ways to solve a financial situation be sure to try out all the options available for you to help you stay out of debt.
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