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Should You Take Out A Personal Loan?

A personal loan is a great way to get a bit of extra cash when you need it. The right personal loan can put you in a stronger financial position but taking out a personal loan without properly considering the implications can leave you with more debt than you bargained for. So when should you take out a personal loan?

What Is Involved In Taking Out A Personal Loan?

Personal loans can be acquired from a variety of lenders, such as banks, credit unions, and other financial institutions. They allow you to borrow an amount of money for a specified purpose and pay it back over an agreed timeframe, or term. Personal loans are popular for big expenses such as home renovations, holidays and weddings. They can also be used to consolidate debt.

When Should You Take Out A Personal Loan?

We all have times in our lives when larger expenses come up. When you need money quickly for things like a new car, an unexpected trip, or a big event, a personal loan can make more sense than trying to save up through your regular salary. These loans also will often have lower interest rates than a credit card, making it easier to repay.

Personal loans can also be used to streamline your debts. If you owe money on different credit cards and elsewhere, a personal loan can consolidate this debt into one loan, making it easier to manage repayments. Many people find they can repay a debt faster, and with less interest, when it is consolidated.

When Should You Reconsider A Personal Loan?

It’s important not to think of personal loans as a “quick fix” whenever you are short on cash. Even though they might seem easy to attain and a good way to access extra funds, you need to remember that when you are paying off a personal loan you are always going to be paying interest. This means that your impromptu holiday will actually cost you more after the fact.

Always check that you can pay back the loan easily within your budget. If possible, it’s also ideal to repay the loan as quickly as possible so that you are not paying interest for an extended period - just check that the conditions on your loan don’t penalise you for easy repayment.

What Should You Look For In A Personal Loan?

When comparing personal loans, there are a few main features to consider when deciding if it’s the right loan for you. All loans will have an interest rate, and this may be fixed or variable. If you do choose a variable rate, make sure that you will still be able to pay the interest if rates go up in the future.

Some personal loans will have fees attached to them, such as an application fee, missed payment fee, or early repayment fee. All of these should be carefully considered and factored into your overall budget. The loan term is the amount of time you have to repay the loan. A longer term will result in lower repayments, but could also mean you pay more interest over the lifetime of the loan.

Sally Writes 24 Mar 2021