If you are in need of money quickly, a personal loan can be a viable alternative to using your credit card. A personal loan is a relatively small, all-purpose loan that will allow you to borrow money without having to disclose your reason for borrowing. The interest rates on personal loans tend to be lower than those of credit cards and the repayment structure for a personal loan can be arranged to span a number of years. A personal loan can be the most cost-effective way of financing short-term purchases, emergency expenses, investments, or even debt consolidation; but it pays to be aware of the pros and cons prior to making a decision.
Some benefits of taking a personal loan include the following:
- Personal loans are easy to obtain from most banks or finance companies as long as you have a stable income and a good credit history.
- If you qualify for a personal loan, you can usually get one within 24 hours.
- No collateral or security required, so if you lack assets or are uncomfortable securing your loan via your assets, you may still be eligible.
- Personal loans can be used for a variety of purposes, all of which are left completely to your discretion.
- If you do not miss any payments on your personal loan, you could build good credit.
- Personal loans will enable you to make important purchases during seasonal sales without having to pay high credit card interest rates, thereby saving you money.
Some things to watch out for when considering a personal loan include the following:
- If you do not have a solid plan in place for how you will pay back your loan, a personal loan can become a debt trap.
- Interest and monthly repayments can tie up your monthly budget.
- Access to quick and easy cash can tempt you into impulse buying and spending beyond your means.
- Most personal loans can only be obtained by those with a steady income and good credit history, and personal loans made to people who lack these things tend to be smaller and have higher interest.
- Personal loans can involve any number of hidden fees, including insurance, early repayment costs, and penalties for missed payments.
A personal loan can be either a wise or foolhardy financial move, depending on your reasons and your means. Be sure to analyse your personal situation and all the options prior to making a decision. If you require any further advice consult a financial advisor.
This post was written on behalf of personal finance specialist Norton Finance.