If you need money, then a personal loan may be just right for you. This means that you are given a sum of money that you pay back, with interest, over a period of months. However, before you decide to apply for a personal loan, you need to make sure that you know the ins and outs of personal loans and that you know how to get a good deal.
What Are Personal Loans?
Personal loans are provided by lenders, including banks, that are not secured against assets like your home or your car. Another word for them is the unsecured loan, as this better describes the fact that they do not have any equity guarantee.
The Pros of Personal Loans
There are a number of benefits to having a personal loan. These include:
- A larger loan amount than with a credit card is generally possible.
- The repayments are fixed, which means that you know exactly how much you have to pay every month. This means that budgeting is a lot easier as well. Furthermore, your interest rate is likely to be fixed as well, although this is not always the case.
- You can usually decide how long you want to take to repay the loan. However, you have to remember that the longer you take, the more you will pay in interest.
- You can use a personal loan to consolidate different debts. This means you could reduce your monthly outgoings quite significantly by combing all your bills into one.
- You can make extra payments on your loan or even pay it off early thereby reducing the amount of interest you pay overall. However, many lenders will charge an early repayment fee if you do this, and you have to be aware of these fees before you decide to make additional payments.
The Cons of Personal Loans
Personal loans aren’t perfect and you have to be aware of the potential drawbacks before you decide to apply for one. You can apply for personal loans online, so it is even more important that you understand all the pros and cons, as it is far easier to click on an accept button than what it is to go to a bank and fill in a range of paperwork. Some of the disadvantages include:
- The interest rates can be a lot higher than other types of loans, mainly because there is no security against them. Hence, lenders are taking a risk by lending to you in the first place. However, on larger borrowing amounts, these rates tend to drop again compared to secured personal loans.
- As the interest rate reduces if you borrow more, it may be tempting to borrow more than you need, which is never a good idea.
Before you decide to apply for personal loans online, you have to consider what you want a loan for and whether there is any way you could avoid borrowing money at all. Borrowing is always more expensive than simply paying for something and you must be careful about your personal finances.
