If you ever asked yourself, “should I get a personal loan?” this article is for you. Sometimes we need to save our financial situation as soon as possible, and sometimes we can’t borrow money from relatives or friends. Then personal loans come to the rescue.
What Are Personal Loans?
It’s a type of installment loan. You take a lump sum of money and then make your monthly payments. You can use it as you wish: buy a new car, pay medical bills, and consolidate debt. The loan term can be from 1 to 7 years. Taking out a personal loan is usually quite simple, especially with a high credit history. But some options could help to have your money borrowed even with poor credit history.
There are a few types of personal loans.
Unsecured Personal Loans
It is a type of personal loan that doesn’t require collateral. Most personal loans are unsecured. So you don’t need to risk your car or house. Usually, an unsecured loan has a fixed interest rate.
Unsecured loans are suitable for people with good credit scores. When you take an unsecured personal loan, banks, credit unions, credit bureaus, or private lenders check your credit report, debt-to-income ratio, and payment history. And the higher your credit score, the lower your interest rates will be.
Secured Personal Loans
Secured personal loans require collateral, for example, home equity loans or auto loans. You can provide a house, car, boats, savings accounts, and more as collateral. Secured personal loan advantages are lower interest rates. This is also a good opportunity for those with some debt or a low credit score. A secured loan also can help to get a higher loan amount.
But be careful and make sure you can avoid late payments because you may risk losing your property like your home if you choose a home equity loan. So you must be sure of your income when choosing secured loans.
Is a Personal Loan a Good Idea To Pay Off Credit Card Debt?
Yes! Personal loans are outstanding for debt consolidation. Consolidating debt is generally a good idea. If you have multiple debts, you have multiple monthly payments. So you have a higher chance of missing your monthly payment and getting loan late fees. Also, it’s just more comfortable with making just one monthly payment. Furthermore, by taking out a personal loan for the consolidation of your debts, you can save money.
Credit cards usually have higher monthly payments. Personal loans typically charge competitive interest rates between 3% and 30%. At the same time, this value ranges from 12% to 24% for credit cards. So you need to look for a loan with a lower loan payment. Again, personal loan rates can help you with this. Moreover, many lenders offer personal loans with different terms, and you can find the best one.
It would work even with revolving credit. You can pay off your revolving debt with this type of loan.
Pros And Cons Of Personal Loans For Paying Off Credit Card Payment Obligations
- The advantages of loans instead of credit cards are primarily down to the interest rate. Average interest rates on the personal type of loan are usually lower.
- You can fix your credit card balances.
- You can fix your credit score.
- You have a fixed payment schedule.
- Avoid multiple monthly installments.
- Origination fees. Some loans involve an origination fee for issuing them.
- Personal loan funds are still borrowing money. They need to be returned and on-time payments need to be made.
- You can have prepayment penalties if you want to repay your loan early.
- If you do not read the loan conditions carefully, you may be forced to pay higher interest rates.
- Anyway, you’ll have more debt.
But remember one thing: Payday loans are bad for paying off card debts. Short-term loans are expensive, and interest rates are high; personal loans are more appropriate for this.
So are personal loans bad or good for covering credit card payment obligations? It is good, considering all the nuances and reading the conditions.