Personal Loans are a great financial option for those with good credit and solid income, but they’re not always the perfect answer. It’s important to understand the pros and cons and either decide if personal loans are right for you or not.
What are the Pros and Cons of Personal Loans
Pros
1. Get a quick credit decision
Personal loans are the quickest and easiest loans to get in the business. If you have the money available and good credit, you’ll be approved within minutes. This is great for those who are looking for fast cash, especially if your funds need to be used quickly.
2. Call it “money”
Many people put off getting a loan or have a difficult time deciding between debt or savings options because they think of them as money, which is why loan companies make money by calling their products “loans.” Personal loans are an option where you can see exactly how much you will pay in interest over time rather than being stuck with a lump sum that’s hard to track.
3. Tax breaks
Depending on how you use your personal loan, you may be able to deduct the interest from your taxes. This is an option only for those with substantial income who will pay a large amount of interest over time. You can look into this deduction to see if it’s right for you.
Cons
1. Personal loans are expensive and risky
A study by the Consumer Federation of America found that personal loan fees average $15 more than credit cards and they can stretch out the repayment over five to seven years. This means that you’ll end up paying double or triple the amount of interest on most personal loans over your typical credit card debt.
2. Bad credit make personal loans harder to get
It may seem like personal loans are easier to get than a credit card, but these loans can be difficult for applicants with low credit scores or bad credit. A bad credit score or past bankruptcy can affect the amount you qualify for and the interest rate you will have to pay. If you have multiple accounts with nothing in collections, then you may qualify for a lower rate if you’re looking for fast cash. This means that your interest costs will be higher, but it’s well worth it if you are using personal loans as a way to start over.
