Are Personal Loans a Good Idea?
Weighing the Pros and Cons
Did you know the average American has an average of $38,000 in personal debt?
If you have found yourself in a financially binding situation and are exploring your options, you might have considered a personal loan. Although you should be cautious about taking out a loan, they can be beneficial under some circumstances.
Are personal loans a good idea? Read on to learn more.
Pros of Personal Loans
If you're in the process of deciding whether a personal loan is right for you, then you need to consider all of the pros. Personal loans can be a great way to build a strong financial future when you use them right.
Credit Card Debt Consolidation
Those who have accumulated credit-card debt might find it difficult to keep up with the minimum payments to pay down all of their cards.
If you have more than one credit card, you could be paying hundreds of dollars in minimum payment.
With the help of a personal loan, you can pay off all of your credit cards and have one more affordable monthly payment.
Affordable Interest Rates
Credit cards can have interest rates as low as 13% and as high of 25%, which makes them so challenging to pay off. However, the average personal loan has an average interest rate of 10%.
Even if you get a personal loan with a high-interest rate, it will still be more affordable than a credit card.
Fast Approval Times
While some loans can take weeks to get approval, you can receive the approval for a personal loan in minutes.
Once you get approved, the balance will be in your account within days.
Cons of Personal Loans
Although there are plenty of pros when it comes to personal loans, there are also cons when you used them incorrectly. Consider the cons before you decide to take out a personal loan.
Dig Yourself Deeper in Debt
If you take out a personal loan and you misuse it, you might put yourself deeper in debt. Don't take out a personal loan if you want to pay for a vacation, monthly bills, and a luxury purchase.
When you're already in debt, you shouldn't take out a personal loan to pay for something other than debt consolidation.
If your credit score is lower than average, personal loans come with a steep origination fee. The origination fee will depend on the lender and your credit score.
For example, if you borrow $10,000 with an origination fee of 5%, then you will have to pay $500. The origination fee will be taken off your loan, so rather than receiving $10,000, you will receive $9,500.
Penalized if Payed Early
Some personal loan lenders will penalize you if you pay off the loan sooner. Before you take out a loan, read the fine print to ensure you won't be penalized.
Are Personal Loans a Good Idea? Now You Have All the Answers
Are personal loans a good idea? Now that you know the pros and cons of personal loans, you can decide for yourself. While personal loans can help you consolidate debt, they can also put you deeper in debt.
Before you take out a personal loan, make sure you're doing it for the right reasons.
If you enjoyed these financial tips and would like to learn more, check out the rest of our blog.
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