Debt is a burden that many people carry with them every day. That debt can take the form of personal debt, student loans, credit cards, business loans, car loans, mortgages, and so many more. Then there are all the different payments that you have to make. These payments are never on the same day which can lead to a missed payment. A missed payment can lower your credit rating which means you end paying more money in interest. Consolidating your debt into a person may seem like a good option, but there are some things that you will want to consider before making the choice to take out a personal loan.
The Good and Bad of Personal Loans
There are a lot of things that are good and bad, but here are the good and bad of personal loans.
The Advantages of a Personal Loan
- The payments and loan amount of a personal loan is consistent. A personal loan has a set amount that you choose to borrow. The lender will then present you with a possible interest rate, payment, and time frame to pay it all back. If you choose the fixed loan option, you can know for certain that the monthly payment will not change.
- Approval for a personal loan can be a quick experience. You can even get a personal loan online. Most traditional loans can take several weeks for an approval decision to be made. You may even have to provide a lot of paperwork to help the lender make the right decision. A personal loan is different. Approval for this type of loan can usually be made in a couple of days.
- You will have very little paperwork to turn over to the lender. The only major things that you will have to provide the lender is proof of identity and payroll information. These are the only things that they will want you to provide to them.
- No collateral needed for a personal loan. Traditional loans required some form of collateral in order to qualify for the loan. The object used for collateral must be equal or greater in value to the amount being borrowed for the lender to issue the loan. You can even get a personal loan with existing cash loans bad credit.
The Negatives of a Personal Loan
The good and bad of personal loans matter. Here are some negative things to know about.
- Using a personal loan to pay off debt is not really paying it off. Rolling several loans into one loan is considered consolidation. The amount you owe will remain the same, but you will have an easier time paying it all back.
- Credit card consolidation is risky. The feeling of not having any credit card debt is an amazing feeling. There can be a sense of freedom and that things have finally come together for you. But the reality is that there is a big danger of using the paid off cards and incurring even more debt than you already have.
- Some personal loans may actually be higher than your current tax rate and budget. Make sure that you read the fine print before signing the loan papers. Know your interest rate. The rate you got in the mail is called a teaser rate and will most likely change once all the credit scores have been run. The rate can actually be lower or higher depending on your personal score.
- Personal loans can affect your income to debt ratio. A personal loan may be a great way to consolidate revolving account debt, but it can ruin your debt to income ratio. If you charge up your credit cards after a personal loan has been issued, then the ratio is most likely beyond what lenders like to see any household carry.
Personal loans are a wonderful benefit if they are used in the right way. Before taking out a personal loan, it is important to know the good and bad of a Debt Consolidation loan. Take the time to do your research on the good and bad of personal loans. Find the right personal loan that best fits your scenario. Just make sure to not take on more debt until the personal loan is paid off.
Have a look at this YouTube video to get some more information: 7 Pros and Cons of Taking out a Personal Loan