While trying to consolidate your debt and get the creditors and lenders off your back, one of the questions that will cross your mind is, is it worth it to get a personal loan to pay off debt?
Personal loans, have become a go-to credit option in America. This can be because they have lower interest rates, are much easier to apply for, and are very flexible. Many consumers are applying for this loan more than ever before.
Whether you want to buy a car, pay off your student loans, pay for a huge household expense, cover a cash-flow issue, need money for an emergency, or just to consolidate your debt, this loan can come in very handy.
What to Consider Before Taking out a Personal Loan
While a personal loan can be a quick way to fix a financial issue in your life, you can also find yourself in yet another pitfall. Therefore, is it worth it to get a personal loan to pay off debt? Here are a few things that you should and should not do when getting a personal loan:
1. Do Think About the Kind of Loan You Need
You need to ensure that the loan you are taking suits the need and that you can also pay for it. While doing this, you also need to compare between a personal loan and other loan options. For example, weigh between a personal loan vs auto loan to find a better option.
You should also note that your loan can either be secured or unsecured; each comes with its advantages and disadvantages. Bottom line, you have to make sure that you know the type of loan you want and can pay for it.
2. Do Compare Fees and Interest Rates
Not all personal loan lenders are the same. Each has its specific terms and conditions. Shop around and compare the rates.
Go for the lender with the lowest interest rates and no hidden costs. Remember, the higher the interest rate, the longer it will take you to repay and the more money it will cost you.
3. Do Keep Track of Your Credit Score
One of the key things you should check before applying for a loan is your credit report. A good report means a higher chance of getting approval by a good lender. Monitor your credit score to make sure that all your payments are up-to-date.
With a good credit score, you can apply for another quick loan should the unexpected happen and you need cash fast.
4. Do Pay Attention to Penalties
Do not forget to read the fine print before signing the loan documents. Understand the lender’s terms and conditions; what happens if you pay the loan early and the penalties involved in late payments, and also what will happen if you are not able to pay the loan completely.
Take note of the total amount of money that you will be required to pay and not just the annual percentage rate of charge (APR). Look at the insurance policies too.
5. Do Consider a Secured Loan
Even though personal loans have low-interest rates, you can get a lower interest rate when you take a secured loan. You can borrow against funds in your savings account, or get a secured home equity loan. However, you also stand the risk of losing your home or saving if you default payment.
6. Don’t Take More Than You Can Pay
Before taking a loan, consider your finances. Calculate your monthly expenses including mortgages payments and any other loan that you have still have to pay. Subtract this to your monthly income, and if with the amount left, you can be able to pay for the loan then you can consider it.
7. Don’t Borrow from Friends and Family
Borrowing money from friends and family is one of the quick ways of killing a good relationship. In as much as you are confident you will pay them back, it will be very awkward if you can afford something and yet they can’t. Keep your financial situation away from your family and friends.
8. Don’t Get a Loan from Shadow Banking Lenders
Getting a loan from unofficial lenders can end up being a major issue. Such lenders are not bound by any rules. This means that they are not regulated and are not accountable. Shadow lenders can at times be very easy and quick to give out loans but they will also jack up the interest rates at their will.
9. Don’t Take Payday Loans
One of the fastest loans that you can get is payday loans. These loans require very little documentation and you do not have to prove your ability to repay the loan.
Sound good right? No, payday loans have very high-interest rates. You can end up paying more than 300%. Stay away from payday loans.
10. Don’t Quickly Settle for Your Personal Bank
Banks are quick to offer their customers an easy loan. This does not mean that they will give you the best rate.
It may be convenient because you already have a relationship with your bank but it can also end up being expensive. Compare their rate to other lenders before considering them.
When taking a loan, do not only see the short-term gain. You might be missing out on some long-term consequences that can end up making the loan feel more like a financial burden than a blessing.
Consider These Do’s and Don’ts When You Want to Know: Is It Worth It to Get a Personal Loan to Pay off Debt?
Personal loans are not the same. Every lender has their concern and they are all unique. When answering the question: is it worth it to get a personal loan to pay off debt? You need to make sure that you understand all about personal loans and get the right one that fits your need.
Want to learn more about finances and how to make better decisions concerning them? Keep browsing our site for more information.