Monday, 6 April 2020

Personal Loans - Pros and Cons

A personal loan is a loan to help you consolidate debt probably credit card debt or maybe some other debt, give you an installment loan at a lower interest rate than you are probably paying on your credit cards or other debt. In this article, I am going to talk about the pros and cons of personal loans so that you will understand what to use it for.

Pro: You Get To Pay Off Your Debt

You get to pay off higher-interest debt and get a lower interest rate. the other part of this that I think a lot of people don't necessarily think about with personal loans is this could actually be something that can help your credit score as well. If you have credit cards and you have debt on them at the higher interest rate, it is not so much interest rate, but it is having that debt itself sitting on those cards. You may know that one of the aspects of your credit score is how much of your potential credit you are using, if you have run up large debts then you are probably using a fairly large percentage of your overall potential credit.

If you get a personal loan and you pay off those credits, yes, you have a new loan, but you have paid down or paid off those credit cards so you no longer have that higher credit utilization that you had on the credit cards.

Con: Origination Fee

You could have an origination fee on a personal loan. So it is possible that you could pay anywhere from 1% to maybe 6% of the amount of the loan in order to get the personal loan. That is obviously not a good thing to hear upfront but, it still depends on what that interest rate is that you get, oftentimes that origination fee can be rolled into the loan and it is really just a factor in terms of what you are going to end up paying. So you may see initially a lower interest rate but then there will be something within the terms and conditions that should show you an APR that shows you what you will pay when you consider the interest rate plus any origination fees that have put in.

It is not necessarily a con, but you need to be careful if you see a lower interest rate but there is an origination fee, you need to make sure you understand what the total costs are with a personal loan and don't just get caught up by shiny objects that make you think that you are getting a better deal. So make sure you understand all the cost, there is plenty of opportunities out there to get personal loans that don't have an origination fee, sort of depends on how good your credit is to some extent.

Con: You Have To Pay The Same Amount Every Month

The second potential con of having a personal loan versus credit cards, in particular, is, once you get a personal loan, you have fixed payments that you have to pay every month that are a certain amount. The flexibility that you have with credit cards goes away. If you have less money next month then you had this month or whatever, you still have to pay the same amount when you have the personal loan. Because it is every month the same thing, just like a car loan, just like a mortgage, you have to pay. So you lose that flexibility with a credit card where you could say, alright, I'm going to pay $200 this month but I don't have that much next month I'm only going to pay $100.

Pro: The Better Your Credit History, The Better Opportunity

No matter what the situation is the better your credit history, the better terms you are going to get on a personal loan. Again, it is another reason for you to always be thinking about keeping your credit scores high and doing the right things in terms of making your payments. Personal loans, any other loan you want. The better your credit history, the better terms you are going to get, and the happier you are going to be.


I like the idea of using a personal loan to consolidate my high-interest credit card debt or any other debt you might have that is at a higher interest rate than what a personal loan might be offering you, The important thing to remember is that once you have a personal loan and you have wiped everything off your credit cards. Just because your credit cards are now down to zero doesn't mean that it is time to start using them again and getting some new balance going. The reason that you are doing this is to try to get your debt down and down at a lower interest rate so you don't want to take on new debt if you get a personal loan. You are not just shifting money around so that you can get even further into debt, but you probably knew that already.

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