A personal loan can be a great solution for many financial problems, but it’s also very important to look at the drawbacks along with the benefits before making a final decision. In this post we’ll dig into the biggest pros and cons of getting a personal loan, hopefully giving you the information you need to make an informed decision about your financial situation. In the end, we’ll recommend a trusted local source for your personal loan funding needs.
Personal Loan Pros
One of the biggest advantages of getting a personal loan is its versatility. Personal loan funds can be used for nearly anything legal, from home improvements and renovations, to consolidating debt, and even funding a vacation. This high degree of flexibility is a big reason that many homeowners use personal loans for their specific financial needs.
Fixed Interest Rates
Nearly all personal loans have fixed interest rates, which means your monthly payment remains the same over the term of the loan. This predictability allows borrowers to create more accurate budgets and helps prevent financial surprises or shortcomings down the road.
Personal loans are most commonly unsecured. This means the borrower does not need to supply collateral. As a result, the borrower doesn’t need to put up any assets, like their car or house, as the security for the funds. For borrowers that don’t want to risk losing valuable possessions in the event of default, this can be a massive advantage.
Financial emergencies don’t always wait, and if getting funds quickly is important, personal loans are often a good option. This is because the application and approval process for many personal loan lenders is typically faster than with other types of loans, like mortgages or auto loans.
Personal Loan Cons
Higher Interest Rate
While the rates for personal loans are fixed, they do tend to be higher than other forms of credit or lending, like credit cards or home equity loans. This can make personal loans more accessible, but more expensive in the long run. Borrowers with less than excellent credit will see a far greater cost to borrow.
Some lenders charge origination fees, which are fees that result from the actual processing of the application. These fees are usually percentage-based, and will generally range from 1% to 6% of the total loan amount. This is another factor that increases the overall cost to borrow.
Potential for Overspending
Personal loans are highly flexible, but this makes them much more susceptible to overborrowing. While this versatility can help you address a wider range of financial needs, it can also make it more likely that borrowers without a plan in place borrow more than necessary. This contributes to overspending and a more substantial debt burden.
Impact on Credit Score
The impact of a personal loan on your credit score is multifaceted. First, the initial inquiry for the loan application will cause a temporary dip in your score. On top of that, having a large personal loan on your credit report will cause a noticeable upward shift in your DTI, which can make it more difficult to get credit in general.
Partner With Cash Link USA For Your Personal Loan Needs
While personal loans can be an ideal solution to many financial needs, it’s critical to think about the specific pros and cons of getting a personal loan. When you’re ready to apply for a personal loan, reach out to Cash Link USA to get started.