Personal loans can be useful for many things. People use them to spread the cost of their wedding, an adoption, tuition fees or to consolidate their existing debt. But how do you know whether it’s a good idea to take one out? There can be both pros and cons to personal loans, and it’s essential to think them over carefully before you commit yourself to one. Whether you already have debt or not, you need to reflect on whether you’ll be able to pay the loan back. You’ll need to make a choice between a secured and unsecured loan, and there are some things you should watch out for so you don’t get stung by unexpected fees.
Secured or Unsecured?
Many people take out an unsecured loan, which depends on you having a healthy credit score. A secured loan, on the other hand, requires you to own property or another asset to back it. A secured loan can be riskier, but typically has lower interest rates, so you need to consider the details. If you have something you can use for a secured loan, it may be an option. But you should only use it if you’re certain you can make the repayments. If not, you could lose your asset, whether it’s property, your car or something else.
Can You Pay It Back?
Being able to pay back your loan is crucial. If you decide you need to borrow some money, you need to find the best, most affordable option. Before taking out a personal loan, it’s best to pay off as much of your credit card debt as you can. Look around for the best interest rates, and read the fine print about any changes. For example, personal loans from Direct Axis have a fixed rate, which doesn’t increase over the term of your loan. You might also consider getting payment protection insurance. Although you may associate it with nuisance callers, it can be useful if you’re worried you might miss a payment because of illness or unemployment. Interestingly, the average credit card interest rate can be far lower than that of taking out a loan – do you might wish to explore such options as an alternative to gaining quick access to additional finances.
Fees to Watch For
When you apply for a personal loan, be careful of any fees in the fine print that you might miss. For example, most loans will charge for early repayment. If you pay off your loan earlier than expected, your lender won’t make the money they thought they would. So they’ll charge extra to make sure they still benefit. You also need to watch out for accidentally causing your bank account to go into overdraft. If there’s a possibility of this happening, don’t use automatic payments, to avoid overdraft fees.
Are Other Forms of Credit an Alternative?
Before you take out a personal loan, don’t forget to consider other forms of credit. For example, a credit card could be a better option for you. You could also try peer-to-peer lending, or even borrowing money from family or friends.
Make sure you think about it carefully before making the decision to take out a personal loan. They can be useful for a range of things, but don’t rush into taking one out.