What are the pros and cons of personal loans? We’re glad you asked!
Pros: they’re fast, they put real cash in your hand, and they’re usually available to bad credit borrowers. Cons: they may have an unfavorable interest rate, they may require upfront fees, and they aren’t negotiable after you sign.
You’re right. Of course that’s not all we have to say on the matter. In fact, we’ve written you a whole guide explaining all these points and more.
You’re welcome. But don’t thank us yet! Read all about it below.
Pros of Personal Loans
Let’s look at the good news first. Here are the benefits of personal loans.
Get Money Fast
One great reason to get a personal loan is that you need money fast. Sometimes in life, you’re hit with an unexpected repair bill or hospital bill that your savings just won’t cover. Sometimes you’re hit by a car and get both of these at the same time!
When you need money right away, personal loans are the best option. Often times, you receive the cash from your personal loan within 24 hours of taking it out.
It’s Actually Cash
Oh, and when we say “cash” we mean “cash.” There are things you can’t usually buy with credit cards or other types of borrowed money. But the money you get from a personal loan is your money to use however you’d like.
The exception, though, is using it as a down payment. Most lenders won’t let you use this borrowed money as a down payment on a second loan.
Other than that, though, it’s your cash to use as you wish.
It’s Your Only Option
Besides that, it’s possible no one else will let you borrow anything. Your chances of getting approved for a personal loan, however, are much higher than with other types of lending.
A personal lender reviews applicants and decides whether to approve on a case by case basis. Typically, personal lenders handpick their borrowers based on certain criteria.
These criteria are different for each personal lender and tend to be far more lenient than banks and other lenders. Many will lend to you even if you have bad credit.
Also, there are thousands of personal lenders out there. And it’s very easy to get your application on a list that thousands of them will see. Therefore, your odds of finding a personal lender who’s willing to give you a chance are very good.
Build or Repair Your Credit
Do you have absolutely zero credit because you’ve never borrowed before? Personal loans are a good way to start building credit. If you make all your payments on time until it’s all paid off, you’ll have earned yourself some positive credit.
It’s that easy! You don’t even have to spend the money on anything; you can just keep it in your account.
This works for repairing credit, too. As we’ve said, personal loans are one of the few options open to bad credit borrowers. If you can get approved for a bad credit personal loan and pay it off on time, it will definitely improve your credit standing.
Lower Rates on High-Interest Debt
Remember: the money you get from a personal loan is cash in your hand. If you can get approved for a low-interest personal loan, you can pay off higher-interest debt.
It’s easy to get stuck with high-interest debt that takes a decade or more to pay off. If you can only make the minimum payment on your credit card, for example, almost all of it goes toward interest.
Then, you’re only paying a minuscule amount of the actual balance with your monthly payment. In essence, the debt just sits there, earning interest.
The cash you get from a personal loan can pay off the whole, high-interest debt instantly. Then, you pay back the loan according to the comfortable payment structure you agreed upon.
These payments actually bay down the balance and you know exactly when they end. And, if the interest rate is lower than the previous debt, you most likely save thousands of dollars.
There’s another reason to pay off other debts with a personal loan. It’s simple: one payment is easier to keep track of than 6, or however many outstanding debts you have right now.
That is, the more debts you have the easier it is to accidentally forget one of them. If you do, you’ll be late on your payment and incur late fees and bad credit. Or, you’ll be surprised by the bill when you forgot to set money aside for the payment.
Consolidating all your debts under one personal loan solves these problems.
It’s true that credit cards can also make some of the claims listed above. But credit cards, unlike personal loans, come with a catch.
It sounds good to put your high-interest debt onto a credit card with a 0 introductory APR. But, eventually, this introductory period ends, leaving you with a very high APR instead.
Also, credit cards always come with a “cushion” of available credit. With the 0 APR, and similar offers, this cushion is a temptation to rack up even more debt.
This is an extremely common trap that keeps people in credit card debt for decades. It’s also something you don’t have to worry about with personal loans.
Your personal loan is a set amount that you take out once. Paying some of it off doesn’t give you a line of credit to fill back up. Also, the rate never changes.
Con of Personal Loans: It Could Cost You More
We admit it: we tricked you before. There’s really only one con of personal loans, that it may cost you more than other borrowing options. Here’s what to watch out for so it doesn’t happen to you.
Higher Interest Rate
One of the drawbacks of a bad credit personal loan is that they often come with a higher interest rate. That’s the price you pay for the lender’s leniency. And it’s how they protect their investment.
If you’re planning to consolidate debt with a personal loan make sure you first check that you’re actually lowering the interest rate.
There are also fees to consider. Often times, an origination fee must be paid upfront when you take out the loan.
This downpayment is a percentage of the amount borrowed. As such, it may limit how much you’re able to borrow (or kill the option entirely).
What’s Done Is Done
Lastly, there’s rarely any renegotiating in the world of personal loans. Your payments are fixed and will be until the end. So you better be sure it’s something you’ll still be able to afford in the future.
Your interest is also fixed, unlike with credit cards. If you pay off a credit card early, you save on interest.
But with personal loans, the interest is usually built into a set repayment amount. Paying it off faster won’t save you anything.
Remember These Pros and Cons of Personal Loans
When considering taking out a personal loan, bear all these points in mind. Better yet, bookmark these pros and cons of personal loans.
Check out this article if you want to get a quick loan online in Canada.