American household debt hit an all-time record in 2018 of $13.21 trillion. This debt is shared by 300 million people.
Do you find yourself and debt and considering a personal loan?
Are personal loans worth it? Let’s take a look at the breakdown so you can decide.
What Is a Personal Loan?
Personal loans can be a viable option in certain circumstances. You can use a personal loan for about anything unlike a mortgage or car loan. Your home and car are used as collateral with mortgages and car loans.
Some personal loans do not have collateral, so they are unsecured. These rates tend to be higher. You can find some personal loans that require collateral, and these loans typically have lower rates.
Check out this guide for more on how personal loans work.
Advantages of Personal Loans
You can get a generous loan amount. You can borrow as little or as much as you want depending on your situation and credit.
Personal loans are unsecured, so you don’t have to put up collateral as we mentioned above.
Applications can be fast and so can approval time. You may be able to get approval within 24 hours since the turnaround process is more streamlined.
Disadvantages of Personal Loans
The loan periods are typically shorter on personal loans, unlike mortgages which can be 15 to 30-year terms. Personal repayment periods tend to be around three to four years, so you need to be able to make these payments consistently.
Unsecured personal loans have higher interest rates, which are typically in the double digits. These rates can make it hard to afford payments.
Even though you did not give collateral, lenders can sue you if your loan goes into default. They can place a lien on your assets to secure repayment.
Should I Get a Personal Loan?
Here are some situations that are a good reason for a personal loan.
Consolidating Debt
With national credit card rates topping an average of 16 percent, a personal loan can help you consolidate your credit card debt for a more cost-effective option. You can lower the APR on your loans and consolidate them into one payment.
Home Improvement
If you want to make improvements to your home but don’t have enough equity for an equity line of credit, you can use a personal loan to pay for these renovations. This is a more feasible option that using a credit card or diminishing your savings.
Building Credit
If you don’t qualify for a credit card but you need to boost your credit score, you can take out a personal loan to help you build your credit. Make sure you take out a small amount that you can easily pay back in time. You also have to make your payments on time.
Paying Medical Bills
If you have medical bills adding up after a procedure, it may be better to take out a personal loan than putting these bills on a credit card. The interest rate is most likely lower, and your credit won’t get damaged from the unpaid bills.
Are Personal Loans Worth It?
There are times when personal loans are a viable option. Are personal loans worth it? Yes, they can be for some of these situations outlined above—just be sure you can pay them back in time.
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