Are Personal Loans Bad? 4 Things You Absolutely Must Know
If you need a large sum of money in the very near future, you probably already know that your options are fairly limited.
No matter what you’re using it for, most of us just don’t have the resources to quickly secure thousands of dollars in a very short period of time.
That’s usually when a personal loan comes in.
However, if you’re like a lot of people, you may have heard someone say that these loans actually aren’t worth the trouble. Even if you have an emergency need for funds, it can be hard to shake that feeling.
But are personal loans bad or is this financial advice completely unfounded?
Are Personal Loans Bad? Not in These 4 Situations
It’s important to point out that no loan is inherently good or bad.
If you need to buy a home, a mortgage is clearly your best option, but as many people now know far too well, that doesn’t mean you won’t ultimately pay a very high price for borrowing that money.
So, while you always need to be careful to be responsible with your money, here are four situations when personal loans are a great idea.
1. Paying Down Credit Card Debt
Credit card debt can be an especially pernicious burden. Once it becomes overwhelming, it’s tough to begin changing your spending habits to keep feeding the fire while also finding the money to pay it down.
It’s no wonder credit card debt often leads to bankruptcy.
Before it gets that bad, though, it’s worth thinking about using a personal loan for credit card debt consolidation.
As long as the interest you receive on the loan is less than the amount you’re paying on your debt, this is almost always a wise choice. While you still need to pay it off, the smaller interest rate can make a huge difference.
2. Improving Your Credit
One very important factor in your credit score is what’s known as your “account mix.” In short, you want your report to show that you’re good for more than just using credit cards.
If your account mix is currently lacking, consider taking out a personal loan. Even if you’re just going to pay it back right away, this will help diversify your track record.
Secondly, you can use personal loans to reduce your credit utilization ratio. By taking one out, you have more credit available. Provided you don’t use more of it, that loan will make your ratio much more favorable.
Therefore, with a little bit of careful planning, taking out a personal loan can actually do wonders for your potential to borrow more in the future.
3. Refinancing Student Loans
Student loan debt currently totals more than $1 trillion.
Does yours represent some part of that?
As with credit card debt, you may be struggling to pay off your student loans because of overwhelming interest rates that just keep adding to the pile.
In that case, you may want to refinance your student loans with a personal loan. This is especially helpful when you’re committed to aggressively paying down this debt as these loans generally come with shorter payoff periods, too.
4. Paying for a Wedding
In 2017, the average price for a wedding was $35,329.
While it’s not a bad idea to plan ahead and try to pay for as much of your big day as possible out of pocket, that’s jut not going to be realistic for most people, even if their target is a lot smaller.
That’s why many people turn to personal loans to finance their weddings. At the very least, they can go a long way toward bringing that total down to a more reasonable amount.
Are Personal Loans Bad?
So, what’s the final verdict?
Are personal loans bad?
The truth is that they certainly can be. A car loan can be, too. As millions of people found out back in 2007, mortgages can be absolutely brutal.
A personal loan can also help you get back on your feet or save you during an emergency situation.
The key is to make sure you actually pay it back and that you get the best possible terms for your loan.
At U.S. Loan Applications, we scour lenders on your behalf to ensure the loan you end up with comes with the most favorable terms. Of course, we also make sure it includes the money you need, up to $35,000.
You can begin filling out a personal loan application right away. The entire process will only take about 5 to 10 minutes.