Unsecured personal loans can be a great source of quick cash when you need to pay for something unexpected. But is it the right type of funding for you? Understanding the pros and cons of personal loans is the best way to answer that question. Let’s start by looking at the pros!
Personal loans are typically best if you want to consolidate debt or finance a large purchase without putting up a home or vehicle as collateral. Unlike a car loan, a mortgage or a student loan, a personal loan can be used for many purposes, such as car repairs, medical bills, a dream vacation, debt consolidation, and much more.
Below are some great advantages of taking out a personal loan.
Unlike mortgages and home equity loans, which are secured by your house, most personal loans are unsecured. This is especially attractive if you have nothing of value to use as collateral.
It’s possible to get a personal loan with bad credit. Some lenders even cater to borrowers with less-than-stellar credit. Similarly, while mortgages and home equity loans can take at least a month to close, it’s possible to apply for a personal loan online and have an answer the next day.
Personal loans are not right for everyone. Before signing up, consider if you can pay off personal loans without getting into serious debt. If you use a personal loan for debt consolidation, remember that you still have the old debt; it just looks different. If you wipe out your credit card debt with a personal loan and then start charging up big balances again, you can start digging yourself into a hole that can feel bottomless.
If you’re on top of your finances and are still keen on getting a personal loan, below are some disadvantages to be aware of before opting in.
Personal loans are often advertised at very low rates, but the advertised rate is usually the best rate available to applicants with the best credit. Secured loans, like home equity loans, usually have lower rates, since you have to put up your home as collateral.
Most personal loan providers charge an early repayment fee if you retire your balance before the loan term is up. It’s something to watch for when you shop around: the larger the loan, the more there could be additional fees.
While fixed monthly payments are a plus to many borrowers, they can be a hurdle if you’re used to small monthly minimum payments and having as many years as you want to pay off credit cards.
Ready to take on a personal loan? Here at MoneyShop, we specialise in personal loans, and provide you with quick and easy loan options. We have four branches across Auckland and one in Northland, located in Otahuhu, Manukau, Henderson, Takanini and Waipapa. Come in to one of our locations and have a chat with our team or apply online for a loan today!