From helping you pay for emergency medical expenses to financing your home renovation, personal loans have a number of uses. The key benefit of personal loans is that the payments are fixed, which makes paying off your debt a lot more manageable. That said, you should weigh out the pros and cons of getting a personal loan before you apply for one.
Benefits of personal loans
- There are no usage restrictions: Personal loans can be used for any purpose. Most lenders don’t specify any usage restrictions.
- You don’t have to offer collateral: Unlike mortgage loans or car loans, you don’t need collateral to take a personal loan. So, you don’t risk losing your assets if you default on payments.
- Interest rates are competitive: If you have a good credit score, you will likely be able to get a personal loan at a competitive rate.
- The repayment term is long enough: Most personal loans have a repayment term of at least 5 years, if not more. This gives you enough time to repay the loan, without the repayments cutting into your disposable income.
- Payments are fixed: Personal loans have a fixed interest rate, which means your monthly payments will be fixed. This can help you plan your budget.
Drawbacks of personal loans
- The interest rate can be high if you have a poor credit score: If your credit score is on the lower end, you will likely need to pay a higher-than-average interest rate.
- There may be prepayment penalties: Prepaying the borrowed loan amount before the specified date could lead to a substantial prepayment charge.
- You may have trouble getting out of debt: If you are getting a personal loan to consolidate your debts, keep in mind that the debts will not be cleared. You will need to create a repayment plan and stick to it to ensure you get out of debt.
- You need to watch out for scammers: When shopping around for a personal loan, you may find certain lenders offering loans at suspicious low-interest rates. Watch out for such loans because it could be a potential scam.
If you do decide to apply for a personal loan, ensure that you choose a reputed lender.