Personal loans do sound like it is something that you borrow money personally, but there is more to that. If you are thinking of borrowing money and you know you can pay it back in a fixed amount every month, this defines what personal loan is. Below are some things that you need to learn about a personal loan and something to think about whether it is the right option for you.
Pros of personal loan
- You can borrow money more than what the credit card can lend you
- The loan repayments are usually offer ed at a fixed amount every month, making it easier for you to pay back and for your budget as well.
- The personal loan’s interest rate is usually fixed, but not all the time. This all depends on which lending company you avail your loan with.
- You get to choose how long you want to repay the personal loan. Keep in mind that the length of time that you choose for repaying the loan will affect the cost that you are charged the interest. It is usually more expensive the more you extend the length of repayment, even if it looks affordable for one month only.
- You get even to consolidate some debts into a single personal loan, thus reducing the monthly repayment costs. However, you need to be careful as this can also mean that you extend the length of your loan and so the overall payment can be higher.
Cons of personal loan
- Personal loans tend to have higher interest rates compared to any other ways of borrowing money, especially if you prefer to borrow a smaller amount of money.
- Since the rate of interest might reduce the more money you borrow, there is a chance that you get tempted on taking out an even bigger loan – way more than what you need.
- Most banks will not lend you less than £1,000 or a repayment time less than 12 months. This means that you either end up borrowing more money than what you need or forced to settle with the minimum 12 months repayment scheme.
Warnings about personal loan
Personal loans are not that dangerous unless the borrower himself is the one with problems in handling finances. However, that is not the only thing that you need to watch out for when you take out personal loans.
One of them is how the interest rates advertised are not the one that will be applied to your loan.
You sometimes see the representative APR, a short-term referring to an annual percentage rate.
Just more than half of those that applied for the personal loan and the ones approved of it should get a rate or better, but it could also mean that they are expected to pay more.
If the credit rating of the borrower is not so perfect, you might still be approved for the loan, but you will have a higher interest rate charge.
Make sure that you ask the lender for a quote on your loan before you make the deal.