Need cash? Four reasons to consider a personal loan
In an ideal world, there would be no such thing as debt (and every day would include puppies!). But in this world, there are many reasons you might need to take out debt to get money in the short-term, including emergency expenses, home repairs, or vet bills for your new puppy (just to name a few).
There are plenty of creditors out there who are eager to take on your debt, because they can charge you a ton of interest and profit from your short-term need for cash. But some options are better than others. Here are a few reasons you may want to consider a personal loan over taking out another type of debt.
1. You’re looking for a loan that doesn’t require collateral
One of the benefits of a personal loan is that they are generally unsecured, which means they aren’t backed by assets like your house or your car. While the cost of unsecured debt is generally higher than secured debt, because lenders have no fallback if you don’t pay, you also don’t have the risk of losing collateral if you default on your loan. If you have great credit (720 or above), you may be able to get a personal loan with a similar rate to a secured loan. That’s what we call a win-win!
2. You want a safer alternative to a payday loan
Payday loans make it easy to access cash in advance of your paycheck, but they can be extremely problematic. You could be charged sky-high APRs up to 400% (that means you’re paying back four times what you borrowed in interest!). Even if you have low credit, it’s worth looking into a persona loan instead — a personal loan will almost always have lower rates and fees than a payday loan, plus a longer repayment timeline.
3. High-interest credit cards would dig you deeper into debt
A personal loan may give you the chance to secure a lower interest rate and a more manageable monthly payment than what you owe on your credit cards. The average interest rate for all credit card accounts is 14.75%, according to the Federal Reserve. But APRs on some card types, including travel rewards cards and airline credit cards, can exceed 24%, according to data from Compare Cards. If you fall behind on your payment, the credit card issuer may apply a penalty APR on current future purchases.
4. You want to consolidate your debt
If you have debt across several credit cards, especially if they have high interest rates, a personal loan could help you consolidate your debt and pay less in interest. Here’s how it works:
- You take out a personal loan and use the cash to pay off all your outstanding credit card bills (and other debts).
- From then on, you make a single monthly payment to pay back the personal loan. Most personal loans have fixed interest rates and payments, so your bills are consistent and predictable, and won’t increase over the life of your loan.
