Personal loans are a type of financing worth considering when you're in need of funds. But, how can you decide if taking out a personal loan is a smart financial move in 2019? To determine if you should get a personal loan, you'll need to look at the big picture and think about how the loan will affect your overall financial situation.
If you're not sure where to start, here are four reasons why you should consider applying for a personal loan in the new year.
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1. Personal loans often come with reasonable interest rates
One of the best reasons to choose a personal loan when you need to borrow money is the fact personal loans often have pretty reasonable interest rates.
Any time you borrow money, you have to pay interest to your lender for the privilege of accessing the cash. If you can keep your interest rate low, your loan will cost you much less. And, interest rates on personal loans are typically well below rates on most other kinds of debt. While you'll typically pay 13% or more on a credit card, for example, it's not uncommon to find personal loans with rates as low as 5%.
The specific interest rate you'll pay will depend upon which lender you choose and how well qualified you are as a buyer. But, before you borrow any money from any source, you should always check out personal loan rates to see if you can access money more affordably.
2. You can use the funds for anything you'd like
Another big benefit to taking out a personal loan: flexibility. Some types of loans, such as mortgage and car loans, can only be used for specific purposes -- to buy a home or a vehicle. With a personal loan, on the other hand, you can access money and do anything you want with it.
You can use your borrowed funds to pay back other debts you owe at a higher interest rate. Or, you could use the money to pay for a wedding, start a company, get a degree, or do anything else your heart desires.
Ideally, you shouldn't borrow money unless doing so is a necessity. After all, if you're paying interest, whatever you buy becomes more expensive because of it. But, if you have a good reason to borrow, a personal loan is a great source of funding.
3. Many personal loans are unsecured
Personal loans can often be obtained without any collateral. Collateral is an asset that you use to secure or guarantee a loan. You give the lender a legal interest in the collateral so it's pretty easy for the lender to take the asset in the event you don't live up to your borrower obligations.
Taking out a secured loan, such as a car loan or a home equity or mortgage loan, can be risky because you're putting your property directly at risk. It's less risky to take out a personal loan that is unsecured and has no collateral. Of course, you'll still be expected to pay back your loan and can do damage to your credit score if you don't -- but if you want to minimize the risk of borrowing, a personal loan is a good way to do it.
4. You can obtain personal loans quickly and affordably
Many personal loan lenders have streamlined the application process. You can fill out an online application, get approved instantly, and get your money within just a few days. And, many lenders don't charge application fees or any fees to originate the loan.
Because the process is quick and easy, you may prefer a personal loan to other types of funding -- such as a home equity loan, which could be a lot costlier to obtain and which could take a lot longer to get approved for. Home equity loans often come with a host of fees, including appraisal expenses, origination fees, and more. When you don't have the time to deal with a long application process or you don't want to shell out a few hundred dollars in fees, a personal loan is an ideal choice.
Is a personal loan right for you?
When you're looking for an affordable loan at a reasonable rate that you can apply for quickly, a personal loan is an ideal option. Just be sure you understand your loan terms and don't borrow more than you need -- or more than you can afford to repay as promised.
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