Before taking up a personal loan, however, you need to ask yourself some crucial questions like:
- Is borrowing a personal advance the best alternative for your circumstance?
- How do you intend to utilize the cash?
- How much do you need?
- How long do you need to pay your loan back?
Here is everything you need to know about personal loans that will help you answer these questions.
How Do Personal Loans Work?
Personal loans enable individuals to borrow cash with a fixed interest rate; a set amount paid monthly within a fixed repayment schedule. This means you’ll know precisely the amount you have to pay every month and when you should finish paying off your loan.
Personal Loan Benefits
Personal advance loans are perfect for a variety of situations, regardless of whether you have to borrow cash to cover an unexpected medical expense, pay for an emergency home repair or consolidate debt. According to Asteria Lending, the primary advantages of individual advances include:
- Knowing exactly when you’re required to pay off the loan thanks to the fixed repayment plan.
- Fixed interest rates protect you from ballooning interest charges so you can worry less.
- With a fixed monthly repayment plan, you can efficiently manage your loan repayment while balancing your budget.
- Depending on your credit score, the interest rate on a personal loan may be lower than other types of credit available in the market.
Drawbacks of Personal Loans
While personal loans can provide you with instant cash for your needs, there are still some things you should watch out for when borrowing. Some downsides of taking personal loans include:
- Original fee of 1% to 8% may be charged to your loan balance.
- With poor credit scores, you may not qualify for the best interest rates.
- Personal loans demand that you borrow a set amount upfront unlike other loan options like credit cards that offer a credit extension you can borrow against.
Who qualifies for personal loans?
Qualifying for personal loans with the best rates and terms typically requires you to have an excellent credit score. However, even with a lower credit score, some personal loan companies will still approve your request albeit with higher interest rates.
Additionally, you should also have the capacity to demonstrate your ability to repay loans by either submitting proof of employment or pay stubs. Since lenders prefer crediting borrowers who aren’t excessively strapped for cash, you should also have a medium debt-to-income ratio.
Should you not meet these criteria, you may still get personal loans with the help of a co-signer.
When should you take a personal loan?
A personal loan may be the best alternative for cash advances in circumstances such as these:
- When you need to repay your loan over a long period and prefer a fixed interest rate with a monthly repayment plan. While other loan options will also offer you loans to make purchases, they often attract erratic interest rates with variable monthly payments based on the interest charge for the money you owe. A great example is credit card loans.
- When you need to borrow loans so you can pay off a debt or purchase in cash. When you are in a situation where you can’t pay with a credit card, for example, an amount borrowed from a family member then personal loans are the better alternative because they offer instant cash, deposited in your bank account.
- When you need to consolidate debt at a lower financing cost yet require a long-term repayment plan. A personal loan makes more sense when you need to pay a debt at a lower interest over a longer time. Sure, you can use a credit card – but, while some cards charge 0% interest on balance transfers or purchases for up to 21 months, the loan fee will be reset after the initial offer lapses. Thus, it can end up being a more costly option than a personal loan.
The bottom line is that personal loans work well if you are looking to repay long-term with lower interest rates. But, as you apply for one, make sure to read through the fine print before taking up the loan.