If you are in a situation where a personal loan is believed to be the best remedy, it is advisable to look at the pros and cons of obtaining one. There are many types of personal loans – payday loans, peer to peer, and consolidation loans being possible options.
When suffering from a cash-flow problem that requires quick action, sometimes acting too quickly can cause harmful repercussions, especially if you are in the process of rebuilding your credit.
Here are 3 Pros to using a personal loan:
- Personal loans are easy to obtain. Peer to peer website offers the convenience of applying from home or your hand-held device, payday loans require proof of employment and copies of identification, and consolidation loans can be approved within 48 hours from your financial institution.
- No risk to your personal property. If you are not working or have a car or pet emergency, knowing you can receive a short-term unsecured personal loan quickly will take a load of your mind. Knowing that you won’t lose your home, vehicle, or assets as a result of non-payment, makes this option more attractive.
- Non-restricted usage. Unsecured personal loans are not contingent on obtaining an asset with the funds, for example a car. The money is yours to use as you need for home repairs, utility bills, family emergencies, wedding, travel, whatever.
Here are 3 Cons to obtaining a personal loan:
- Qualification guidelines are set. Most payday loan companies require employment (pay stubs x pay periods), a reoccurring government cheque, and/or good credit to approve a loan. Without these, the funds will be very difficult to obtain. Peer to peer loans require a minimum credit rating (set by the lender) and income of a set level. Consolidation loans through your financial institution may be negotiable based on your credit rating and history with the bank.
- Smaller loans. If you are under-employed or have a low credit score, lenders may limit the amount of money they make available to you to reduce the risk of you defaulting on the loan. An unpaid loan results in no profit for the lenders.
- Payments and interest rates are higher. Unsecured personal loans are riskier for the lender to engage in and this results in higher interest rates and shorter repayment terms.
“Having an additional loan on your credit report will help you build credit, if you make payments on time. Plus, paying off or reducing your credit card balances can boost your credit by lowering your utilization ratio,” shares Laura Adams of QuickAndDirtyTips.com on another Pro to obtaining a personal loan.
What about a credit card loan?
If you feel this may be an option for you and your situation, take a minute to figure out whether you’d be better off with a personal loan or credit card by using this credit card minimum payment calculator. If you are able to pay off a personal loan faster than by making the same payments on a credit card balance, then a personal loan might be the best option.