Do You Need Fast Cash? The Pros and Cons of Personal Loans

If you need fast cash, a personal loan is an option. You also need to worry about repayment and interest rates. Here are the pros and cons of personal loans.

Money problems keep 65% of Americans up at night.

Stressing over money isn’t only unpleasant, it’s dangerous too. Your body reacts negatively to high levels of stress. Cardiovascular disease, high blood pressure, depression, anxiety and more can all result from chronic stress.

Instead of worrying about paying your bills, maybe you’re considering getting a personal loan. When you use them correctly a personal loan could be the answer to your financial problems.

However, if you don’t use the loan correctly, you might end up in a worse situation than you began with.

We wrote this article to clearly define the pros and cons of personal loans. Read on to find out what the best choice will be for you.

Pros and Cons of Personal Loans

Before we explore the pros and cons of personal loans, we’ll explain how a personal loan works. These types of loans have fixed monthly payments. Usually, you will receive the money from a bank, credit union or online lender.

Annual Percentage Rates

Your lender rates can vary depending on the institution where you get the loan. You can expect a rate that falls anywhere between 7% to 36% Annual Percentage Rate (APR). The total interest you’ll pay along with extra charges create your APR.

Qualifying Factors

Lenders will qualify you for the loan using several different factors. One of the things they’ll be looking at is your credit score and credit reports. After they review your credit score, lenders will want to see your credit to debt ratio.

The better your credit the lower your rate will be. When you’re credit score is below 600 it’ll be difficult to find any lender. If you have a very low credit score, and you do find a lender, the rates will be extremely high.

Compare Rates

Before you choose your personal loan, you should do some shopping. Find a reputable company to help you with the credit review. Compare rates from different vendors and find the one with the lowest APR.

Be careful as you’re shopping that not every lender is running your credit score. You want to limit the number of times an institution runs your credit. Excessive credit checks will affect your credit score.

Now that you understand how a personal loan works, let’s look at the pros of getting one.

Pro: Personal Property Stays Safe

One of the best personal loan advantages is the peace of mind that you’re property is safe. A secured personal loan will not require you to back it with any type of collateral.

If you default on your loan you won’t have to worry about losing your assets. For example, other loans might require you to place your house or car as collateral.

In the event you can’t pay off your loan, the lender would get your house. You never know when a major life event will prevent you from making a payment. However, with a personal loan, you’ll know that you and your loved ones will always have a place to live.

Pro: Simple Application Process

Next, you’ll enjoy being able to conveniently apply for a personal loan. In the past, the application process was extremely tedious and difficult.

However, with the ability to use an online vendor, the application and approval process can take less than 24 hours.

Within a couple of days, you can have all of the money you need.

Pro: Consolidate Debt

Finally, your personal loan is helpful in consolidating your debt. If you have different types of debt, like credit cards, a personal loan could be your way of refinancing.

The Federal Reserve shows personal loan rates are going down while credit card rates are going up. The average personal loan rate averages around 9.7% while credit card rates are averaging close to 14%.

If you have a lot of credit card debt, you could get a personal loan to repay it. You’ll save money because you’re interest rate will be considerably lower. While 9.7% is the average rate for personal loans your rate could be as low as 6%.

The state of your credit, of course, will determine if your rate is closer to 6% or 9%. Once you’re debt free you can start building your financial future.

Now you know more about personal loan advantages. Next, we’ll explain the potential disadvantages of receiving a personal loan.

Con: Budget Concerns

Emergencies are usually the reason people apply for a personal loan. The urgency of needing the money right now is the guiding force behind their decision. You put your finances in danger if you buy a loan without reviewing your budget.

Before you agree to any loan, find out what the monthly payments will be. If the payments don’t fit in your current budget, don’t get the loan.

Con: Origination Fee

Interest isn’t the only expense your personal loan will carry. You’ll also be responsible for paying the origination fees. The processing of the loan costs the lender money so they charge you origination fees.

Normally the fee will range between 1% all the way up to 6% of the amount you’re borrowing. When you take out the loan you’ll have to pay the origination fees up front.

This can be especially upsetting to individuals who are tight on money. Having to pay a bill right away with the loan money received can seem counterproductive.

Con: Scams

Beware of all the scammers out there waiting to take advantage of you. Not every loan offer you’ll receive will originate from a legitimate source. Usually, scammers will offer you a fake loan to get your personal information.

Once they have your personal information you’ll be at risk for identity theft. Other scammers will even ask for an upfront fee to secure the loan.

After they receive the fee they disappear into the night. This scam even has a name, it’s called the “advance-fee scam“.

Guidance on Your Financial Journey

The pros and cons of personal loans will be different for every individual.

OnMoney Making wants to help you find answers to all of your money questions. The purpose of our well-balanced blog is to help you earn more money. We’ll provide you with informative posts that can guide your financial decisions.

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