Debt of any sort, usually are rife with risk sometimes by caused mismanagement other times just a string of unfortunate circumstances. This is also the case in taking our a personal loan. If you borrow and cannot pay it back, consequences like ruined credit, additional fees, interest charges, and even bankruptcy is what is waiting around the corner.
With a legitimate plan & responsible use, a personal loan can be a very helpful financial tool. All in all, you have to weigh all your pros & cons and should decided when you will use a personal loan, when it’s not viable and also if another route will be more beneficial.
When Should you consider a personal Loan.. .
When you want to consolidate high-interest debt into a new loan with a lower rate.
This is probably one of the best uses of a personal loan, to consolidate lot of high-interest debt. This route can help you save money IMMEDIATELY because of the lower fixed rate, to also one payment each month as opposed to a number of credit card payments for example. This also helps making repayment easier becuase of the one payment. Sadly though, this is only a viable option if your credit score is good enough to qualify for a good APR.
You have good credit, so you can qualify for a loan with an attractive rate and terms.
While it’s possible to qualify for a personal loan if you have poor credit or a thin credit profile, you’ll only pay for it on the interest side cause the rates DEFINITELY going to be higher. So if you have bad credit, your priority should be building your credit score first. So, pay down debt, credit card balances as they negatively affect your score, be up to date with your late bills and make all other monthly payments on time. Aim for the 690+ Range.
You have a specific purpose and a have to borrow money.
There’s technically no restriction on what you can use the loan for, but these loans are best for a big expense that needs time for it to be paid off. This could include surprise medical bills or other medical emergencies, a possible house project that needs instant attention or various other personal matters.
With a personal loan, you can borrow a set amount of money then pay it back over several years like any typical loan.
You want a fixed monthly payment and fixed interest rate.
EVERYONE likes predictability.. And that’s what a fixed monthly interest rate will bring you as opposed to a variable rate. The interest rate is what dictates your monthly payments and if it’s fixed then your monthly payments are too. No surprises..
You figure out you can afford it.
There’s plenty of online mortgage calculators and personal loan calculators which are pretty much one in the same except the mortgage is backed by the home (collateral) and typically has a longer loan term. These calculators will give you the monthly loan payments which are usually accurate and just matters how realistic you are in the rate & terms you put in it.
For example, I used one prior to buying my car and was pretty spot on after they ran my credit from what I got from my research and calculation.s
Last Word..
You’re looking at either a great financial tool or some more headaches and stressful days coming your way, when you get involved with personal loans. Do all your due diligence on financial position and make sure, you analyze everything and be honest with yourself on what you can afford.
Thanks for reading!
