You’re trapped between a rock and a tight place. Somewhere along the line, the budget got dragged through hell. The wallet was set ablaze, and your stress levels hit mountain high’s. Now you find yourself facing bills with no clear path to staying out of debt.
You may be thinking about getting a personal loan.
Let’s face it, taking out a loan sucks. Credit cards charge a brutal 14% interest rate, which means it’s almost impossible to keep up with payments.
But getting a personal loan isn’t always a bad idea.
In this article, I’m going to share with you a few tips to make sure you can take out a personal loan without getting screwed.
What is a Personal Loan
Regardless of whether you are spending money or borrowing money – you want to make sure you know what you are getting in bed with. The big reason why personal loans are such a popular form of borrowing is because you don’t have to put any collateral up to grabs. Unlike title loans for example.
These are also known as unsecured loans, and although they may be lower than your typical credit card – they still tend to drift to the higher side of the scope compared to secured loans (well, that’s the consequence of no collateral).
So When Is The Right Time To Get A Personal Loan?
I am an avid believer in if you WANT something, but you can’t afford it – you have to work harder to get it. But even so, if your thinking of taking out a personal loan to pay for some fancy holiday, or a new non-emergency laptop, STOP!
These loans may be an easy way to get a quick fix of cash, but at the end of the day, it’s still debt and you pay for it.
But where personal loans are useful is helping you get out of other debt. For example. If you are trying to pay off the crazy record high interest on your credit card, you can take out a personal loan for the amount and pay this off instead… Saving you a fortune in the long-run.
What’s The Point Of Creating Another Debt To Pay Off One?
Let’s look at it this way. In America, the average credit card interest rate is roughly 13% and above. Which means, let’s say you have a maxed $10,000 card. With interest, you would pay $23,000 +. Even worse, it would take 15-years to get paid off.
You could take out a personal loan for $10,000 to pay off the credit. All of a sudden, your interest rate decreased to anywhere between 5 – 10 percent.
Now you only owe $12,500…
Much better, right?
You Can Also Use Personal Loans To Refinance Student Debt
Here is a scary thought. 44 million Americans owe almost $1.5 trillion in debt. Although the debt tends to be with a lower interest, it is becoming a big problem in the American economy.
But it’s also another great way to apply personal loans.
With the right negotiating, you can find a lender who will offer you a better interest for the sum you owe on your student debt. Which means essentially you can refinance your loan saving you both time, money, and tons of stress.
Advantages Of Personal Loans
If you are set on getting a personal loan, there are a few things you need to consider.
Personal Loans Have A Fixed Term
Which is actually great. Unlike other loans, where rates make the terms. Personal loans have a specific date where the loan will be paid off by. For personal loans, the duration tends to be under the 5-year mark.
Fixed Interest Rates (Which Is A Blessing)
Fluctuation in interest rates have caused more than just a few headaches. The smallest change could add years of repayment on higher paying debts. Which is another advantage personal loans have over other forms of borrowing.
Regardless of your payment plan, the agreed date, and interest rate stays fixed for the lifetime of your loan.
What To Be Careful Of
At this point, personal loans may be sounding to good to be true. Well, it does not come without it’s faults. There are a few things that you should be aware of before taking out a personal loan.
There are often 4 “hidden clauses” in your personal loan:
- Insurance that compliments the loan.
- Pre-computed interest.
- The origination fee.
- Prepayment penalties.
Although, these are there to protect you, make sure you know what each one means, and how it benefits you. After all, why pay more for something you don’t need?