Personal loans can be used for so many things like credit card debt consolidation, to finance large purchases and it is super easy to take. This is a type of unsecured loan that is straightforward but you still need to know a lot about it so that you will not rush into what you suppose not to rush into. Today we will be talking about the pros and cons of personal loans but before diving into that let’s know what a personal loan is.
What is a personal loan?
A personal loan is simply an installment loan given to a borrower and to be paid back in a predetermined length of the period according to the loan terms and conditions. A personal loan can be secured with collateral or stuff like vehicles, houses, or sometimes might be unsecured too.
The borrower is meant to request a certain amount of money and the lender will go through all the information given and ask for any additional info needed for the loan to be disbursed to the borrower’s account in a matter of hours if all things equal.
For this type of loan, borrowers have the right to spend it on whatever they want to spend it on they just need to agree to the lender’s terms and conditions on how they will repay the loan and the period they must pay it off.
What Is the Benefit of a Personal Loan?
If you need quick cash for some expenses like the home amendment, medical expenses, or paying off any high debt you are into and you are sure you can easily repay back according to the terms of the loan.
A personal loan looks interesting, easy, and fast because it is unsecured most times and collateral-free.
It is just always advisable to put at the back of your mind that this types of loan always have a very high-interest rate and if you calm down and calculate the interest with the capital and your repayment period length with the agreement then you conclude if it is really okay for you then you can go for it.
The Pros and cons of personal loans
There are a lot of things you really need to consider before getting this type of loan because there are a lot of advantages and of cause, it comes with a good number of disadvantages too. That is why we will be discussing a few pros and cons of this type of loan
Pros of personal loans
It is very interesting to discuss the advantages of personal loans first then we will move to its cons.
Fast Access To Cash: Though not only personal loans but all loans have different loan processing periods personal loans always boast of disbursing loans to their borrowers very fast in fact some promise next-day disbursement of loans to their borrowers. So why not try a personal loan if you found yourself in an emergency position may be for your house repair or medical expenses or anything emergency and you know you can avoid paying back according to the lender’s rules?
Limit flexibility: In fact, you can get a personal loan of $1,000 to $10,000 depending on the limit the lender-placed as per the borrower. This makes borrowers able to use this type of loan to solve their emergency financial issues.
Mostly used for debt consolidation: If you are hooked on a credit card loan or any individual loan considering taking a personal loan consolidation will be okay. This even makes you reduce the stress of thinking of how many loans you will need to settle every month. What is even more awesome is that if you specially take the loan to pay off a particular debit and you do not want the personal loan to be paid to your bank then some lender will ask for the bank you want it to pay to so they will just pay directly to help you pay off that your debt.
Credit building: This is a good way to increase your credit score because you repaying your personal loan on a monthly basis will be reported to the credit bureaus: Experian, TransUnion, and Equifax. Remember payment history account for 35% of your FICO credit score
Cons of personal loans
Now let’s talk about the disadvantage of personal loans.
High-interest rate: This is the major parameter you really need to take a look at about a personal loan. Some personal loan takes APRs of 36% while few still take APRs of 3% you just need to compare and check for their policy requirements and a lot more. Generally, personal loans always have high-interest rates because of the risk of unsecured loans with no – collateral and some borrowers with low credit scores.
Hidden fees: Then you need to ask very well and read all the terms and condition of personal loans some comes with some hidden fees aside from the interest so you really need to check all the documents you are signing very well before signing them.
High payment: Some personal loans may come with a very high monthly repayment even more than credit cards and you must pay off at the stipulated loan term. If you have some other expenses and tight finance then this high repayment might make you default on some repayments.
That is why you really need to make a proper calculation about your finances before you even take the loan at all. Be sincere with yourself if you can really meet up with this loan repayment and it will not affect your other finances.
Some lenders might still ask for collateral: Despite all having high-interest rates some lenders might still ask you to bring some collateral before they can give you the loan. Tangible assets like houses or cars can easily get seized when borrowers defaulted.
These are the pros and cons you really need to know about personal loans and some other things about the loan you need to know before taking it at all. The most important in any loan is for you to able to juxtapose if you really need the loan and if the loan will really solve your financial issues and if you will be able to pay back easily. Do not forget that it’s not free money that you must pay back.