Loans

What Are The Pros And Cons Of Getting A Personal Loan?


What Are The Pros And Cons Of Getting A Personal Loan? 12.08.2019Leave a comment
What are the pros and cons of getting a personal loan?

A whole life consists of various events. They are so unpredictable that they can catch people by surprise and not only in an emotional sense.

Unfortunately, in the present time, one cannot do without money. However, the difficult economic situation does not allow persons to freely manage amounts. Average people have to save on everything, draw up a clear budget and anyway, they constantly do not have enough funds. And then there’s a wedding of a best friend or a suddenly broken car!

There is a good way to cover up unexpected or vice versa planned (wedding, home improvement, vehicle repairs, etc.) expenses.

One can immediately think of a credit card which is a common way to pay for goods in America. But, recently, more and more people discover for themselves such a way out from a difficult financial situation as a personal loan.

In today’s article, a reader will be able to find out about peculiarities of personal loans, their benefits and drawbacks, and what lenders provide such type of credit.

What a Personal Loan Is

As has been mentioned above, a credit card is a usual way people have been able to gain some additional funds for the purchases. It has its distinctive features.

Credit Card vs Personal Loan
Credit Card vs Personal Loan

A person who possesses such a card can use it any time they want and there is an unset period in which they can replenish the borrowed money. Also, credit cards have a limit and, as a rule, variable (floating) rates that are not always beneficial for an owner.

Though the term people must pay off the debt is not fixed. A person may make payments as long as he/she provides a minimum monthly amount to the bank plus interest.

To sum up, a personal loan is a money in debt which a borrower is obliged to repay constantly and timely with a set sum of money each month for a fixed period.

Kinds of Personal Loans

Personal loans are divided into 2 main kinds:

  • A secured personal loan
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It is understandable from its name that such lending has to be secured with something valuable. In the financial language “this something” is called collateral. This is an asset which a person provides to the creditor to assure his debt repayment. Plainly speaking, it is an insurance of a lender that it receives its funds back in any case. As collateral one can use a house, a car or some other property which has essential cost. It is worth to mention that collateral can reduce APR and make a loan more profitable for a consumer.

  • An unsecured personal loan

This credit doesn’t imply providing collateral. It is “not saved” for a lender. That is why to ensure itself, they often proceed with such a type of fast funding with higher interest rates. A financial institution also wants an applicant to have good to great credit scoring and a sufficient positive credit history to avail personal loans without collateral – unsecured loans.

The Most Common Purposes People Obtain Personal Loans For

Purpose Description
Credit debt consolidation
Debt consolidation is a great possibility for a person to manage to repay various types of lending. It means one can apply for such a financial product to overcome expenses of, for example, a student loan, home repairs lending, and/or a credit card debt. This allows receiving funds to unite and pay off the current debts with a benefit if a personal loan for consolidation has lower interest rates.
Unplanned expenses
If a person faces financial difficulties to pay off, for example, urgent car repairs or essential medical bills, they can get a personal loan to cope with the situation. It allows paying back the debt calmly and with no rush.
Home renovations
House improvements have indisputably high costs. A portal Home Advisor evaluates kitchen repairs, for example, in $22,011. Without any doubts, it is an enormous sum for an average person. A personal loan for house repairs will make this endeavor easier and more affordable.
Wedding Costs
An ordinary wedding in the US implies $20,000-30,000 to spend on it. Personal loans can make it possible to plan the big day without crucial consequences for the future family budget.
Dream vacation
Personal loans can come in handy when it is about a trip of the sweetest dreams and a person doesn’t want to miss a chance to have a once-in-a-lifetime experience.

Trustworthy and Reliable Financial Organizations to Get Personal Loans

Nowadays, there are a great many options where to apply for a personal loan. One has the opportunity to obtain fast funding through conventional banks, online lenders, p2p platforms, personal loans marketplaces, and credit unions.

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It is up to a person which way it seems better for him and what variant is the most convenient and easiest.

Such a well-known and reputable resource as NerdWallet each month presents its list of the most trustworthy lending institutions with the most favorable conditions and positive feedback.

According to its rating of August 2019, the top companies are:

Name of a lender APR Min. credit score
Laurel Road
8.01 - 16.30%
700
LightStream
3.99 - 16.99%
660
Marcus
5.99 - 28.99%
660
SoFi
5.99 - 16.79%
680
Avant
9.95 - 35.99%
580
OneMain
18.00 - 35.99%
None
Upgrade
7.99 - 35.89%
620
Upstart
7.69 - 35.99%
620
Discover
6.99 - 24.99%
620
Payoff
5.99 - 24.99%
640
Earnest
6.99 - 18.24%
680

Benefits of Personal Loans

Like every financial product, personal loans have their positive and negative sides. To begin with, the advantages will be considered.

  • Individual loans can be obtained for various purposes

One is absolutely free to choose which way to spend fast money. What does it mean? For instance, student loans, mortgages, and vehicle lending have very strict restrictions on usage. They can be spent only for the definite stated in the agreement issues. Vice versa, a borrower has no obligations what expenses to cover with the personal loan money. It is possible to use it for anything a person needs, i.e. wedding costs, home improvement, etc.

  • As a rule, no collateral is demanded

In the vast majority of cases, one must not support a loan with the property of significant value to be approved. This is good from different points of view. Firstly, if a person doesn’t have any, it is still fine to obtain an emergency fund. Secondly, in the case of a loan default, a borrower won’t lose his home or vehicle, for example.

  • An applicant has a chance to request any sum to lend

A possible personal loan sum to get is pretty impressive. The lenders are ready to give financial assistance in the amount of $1,000-$100,000. This quantity will be able to help solve practically any sort of money problem of an average citizen of the USA.

  • APR is fixed and beneficial
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Borrowers with a good to excellent credit scoring can count on a profitable loan with a fixed APR of about 5%. Naturally, for those who have a worse credit rating, APR will be higher. This is an essential advantage if to compare interest rates of personal loans to those of credit cards. They, on average, are as high as 13% and a credit rating doesn’t influence them.

  • Persons with a bad credit rating can get fast funds

People with poor credit scoring, either way, can be approved for emergency money. There are lenders which work specifically with such clients. They have softer requirements for personal loans provision. Usually, a minimum credit score demanded, if any, is 580. Though it has to be clear that APR for such lending is high, it can reach nearly 36%. However, this is still a better way to lend than qualify for a payday loan.

  • There is a sufficient repayment period

As has been mentioned earlier in the article, the term to pay back the funds on a personal loan is quite long.

Typically, a person will have from 1 to 7 years to give back the money. Each financial institution has its conditions and terms for a personal loan which a client can easily find out on their website page. They will be given immediately after loan application taking into account the very borrower needs and financial capabilities.

Best Offers in December, 2019

Lender APR Loan Amount Loan Term, Mo
3.99% – 35.99%
$1,000 – $100,000
24 – 84

4.73% – 35.99%
$1,000 – $50,000
36 – 60

59% – 199%
$500 – $10,000
9 – 36

5.99% – 24.99%
$5,000 – $35,000
24 – 60

5.99% – 35.99%
$500 – $5,000
3 – 36

Possible Minuses of Personal Loans

It is inevitably important to apply for a personal loan only to well-known and trustworthy lending companies. There are a lot of credit fraudsters who would like to steal a person’s money. To omit such a possibility, one has to be fully aware of all the information about a lender. Also, it is possible to use the following tips not to fall into the clutches of scammers. A person should worry if:
  • Loan conditions are too beneficial for the borrower.
  • An interest rate is significantly lower than the average market rate.
  • A lender requires advance payment.
  • The conditions specified in the loan agreement differ significantly from the agreements that were reached between the parties earlier.
  • A lender does not require the borrower to provide personal data, as well as information on solvency and credit history.
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What a Person Has to Keep in Mind Applying For a Personal Loan

  1. Before applying for a personal loan, one must clearly plan when and how much he can repay. A person needs to organize a family budget so that it takes into account the loan paying back date. It is unacceptable to get fast funding in such amounts that one won’t be able to repay. In other words, a person should apply for an emergency sum only if they have no other choice, but they are 100% sure that they can pay it back promptly.
  2. Since, today, nearly anyone can make out a personal loan in just a few minutes, some people buy things that are completely unnecessary to them. Moreover, such accessibility in the field of lending has caused some borrowers to live not on income. As a result, they find themselves in a credit trap when most of their earnings go not even to repay the loan, but to pay interest. Therefore, obtaining any loan must be approached with great responsibility.
  3. Taking into account the possibility of unplanned situations, it is necessary to worry in advance about the possibility of extending the repayment term without charging fines and additional interest, if payments cannot be made timely. It is worth to ask whether such a service is provided and how much it costs.
  4. A person has to be sure to read the entire text of the loan agreements in full – this is the main document. It regulates the relations with the creditor, and identifies the rights and obligations of both parties to the transaction. After signing the agreement, it will no longer be possible to cancel the service, as well as change its parameters.
  5. One should choose the most advantageous offers and not give preference to the first organization that catches his eye. A person needs to clearly understand what he/she is going to accomplish. Therefore, it is necessary to carefully study the offers from different lenders, compare the conditions and benefits for themselves.
  6. In case of any issues with timely payment, a borrower ought to contact the representatives of the financial institution. A person has to show how they desire to solve the problem. Ignoring calls only leads to worse consequences. One has to explain to the lender the reason for the delay and together with it to find the solution for the trouble.
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Conclusion

Before actual qualifying for this or that individual credit, one must be attentive, cool-headed, and scrupulous taking into consideration all the positive and negative sides of this deal. A person shouldn’t be blinded by the nice ads and a great interface of a lender’s website, the only thing to consider is figures. One has to be sure to the full that they are acceptable and profitable to him.

To take a personal loan or not to take – everyone decides for themselves. However, it is inevitable to treat the debt with all the responsibility and seriousness.

With the borrowers’ right assessment of their financial capabilities and a rational attitude to lending, a personal loan can become a tool to solve various kinds of difficulties with funds. Use credit wisely because money does not tolerate casual approach

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Andrei Shilkov

Blog author. I am well versed in Finance and Digital Marketing. I have two bachelors degrees in Finance. Born in Russia, but later moved to the USA, to western Pennsylvania, the city of Pittsburgh. I have a Certified Public Finance Officer (CPFO) certificate. I also worked at IRS and Microsoft.

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