Wondering if you should apply for personal loans online? In this guide, we’ll be taking a look at a few of the pros and cons of getting a personal loan.
Whether you need cash for a home renovation, to consolidate your debt, or just to cover an unexpected cost or even take a vacation, these pros and cons will help you learn more about personal loans, and whether or not online personal loans are right for you.
Understanding the Benefits of Applying for Personal Loans Online
Overall, there are quite a few great advantages you’ll enjoy if you choose to apply for personal loans online, such as:
Simple requirements – In most cases, your lender will need proof of income and residence, along with your personal information so that they can run a credit check. This process is fast and easy, and you’ll typically know whether or not you qualify for a loan within a few minutes. Compared to going into a bank for a personal loan, applying online for personal loans is a lot faster and more convenient.
Can consolidate other debt – This is one of the best ways to use personal loans. If you have 3 credit cards with $5,000 balances at an average of 30% APR, and you take out a personal loan of $5,000 at a 10% APR, you can repay your credit cards immediately, consolidate your debt, and save quite a bit of cash on interest.
Helps build your credit – Personal loans, unlike some other types of loans like title loans and payday loans, are reported to the major U.S. credit bureaus, which means they will help build your credit if you repay them on time.
The Drawbacks of Applying for Personal Loans Online
Personal loans online are not always the best choice. Here are a few potential drawbacks of getting a loan.
Can lead to more debt if you don’t spend wisely – A personal loan is still a loan. If you take out a loan that you don’t have the cash to repay, you’re going to end up in a worse financial position. Always consider your personal financial situation and make sure you can repay before taking out a loan.
In addition, use personal loans wisely. For example, it may be a good idea to use a personal loan to make necessary improvements to your home before selling it or renting it, or to consolidate your debt. In contrast, taking out a personal loan to buy Christmas gifts or take a vacation is not a great idea.
Monthly payment is set and inflexible – Your loan will be repaid in equal monthly installments. Unlike a credit card, for example, these installments are not modifiable and don’t have a “minimum” that you can pay. They must be paid in full each month, or you will be charged late fees, or you may even “default” on your loan, and it could be sent to collections.
Bad credit means high interest rates – Personal loans can have high interest rates of 30% or more if you have bad credit (a 620-credit score or less). These rates may sometimes be higher than credit cards. If you have sub-par credit, you may need to shop around to make sure you find the best deal on your personal loan, or else you may end up paying quite a bit in interest.
Is an Online Personal Loan Right for Me? Consider Your Own Financial Situation!
As you can see, applying for an online personal loan has both advantages and drawbacks – and this type of loan may not be right for everyone. So, before you apply for personal loans online, consider your own finances, how you plan to use the loan, and the interest rates you’ll apply for. Do your due diligence, and you’re sure to make the right choice for your financial situation.
Published by Samantha Brown