Online Personal Loans: Good or Bad Idea?
Will a personal loan be a good idea, and will it have any effects on my credit score? This is a question most people ponder on when they suddenly come face to face with a financial emergency. This is when they contemplate applying for personal loans; however, most people wonder it is a good idea?
What do experts in debt management say?
If you have good creditworthiness, taking out a personal loan is a good idea to meet a sudden need for cash. However, if you are not one of the lucky few with an excellent credit score, taking out a personal loan does have its share of risks. They say personal loans are costly as their interest rates are higher than traditional bank loans with collateral. However, there are some scenarios where taking out a personal loan is a good idea, and they have been listed below-
To pay off debt-
If you have debts that are difficult to manage like multiple credit card loans, taking out a personal loan is a good idea. Personal loans have lower interest rates over other loans like student or home loans. Though the loan still exists, you will be able to pay off this loan quickly. The monthly installments for repayment are more affordable and lesser than what you were paying earlier. You can improve your credit score as you will have one debt to pay off over several pending loans.
Medical bills–
Medical emergencies can crop up at any time, and you cannot place a price on the life of a loved one. Quality health care is expensive, and when one suffers from a sudden medical emergency, people struggle with bills. In such a scenario, taking out personal loans are a smart idea. You can apply for them online, and the approval for the money to be deposited in your account is generally in just 2-3 working days.
Home renovation–
If you wish to revamp your home, personal loans come in handy. You can finish the project with professional companies and later pay off the loan in affordable installments every month.
Wedding costs–
Personal loans come in handy for wedding expenses. You can buy everything at once without being anxious about the supply of cash and repay the loan after the ceremony is over.
Besides these reasons, you can use a personal loan for car repairs, travel, purchasing something big for your home or office, etc. Make sure you have good credit standing if you want a lower interest rate. In case you have bad or poor credit, work on improving your credit score if you can. Pay your pending bills and precise credit card balances to increase your creditworthiness for approval.
When are personal loans a bad idea?
There are some scenarios where personal loans should never be taken. Let’s look at them below-
Gambling-
In case gambling is legal in your State; this does not give you the reason to indulge in it and lose all your money. Taking out a personal loan for gambling is one of the worst ideas you can think of. The compulsion to take out a loan might be strong, but it will lead you to a spiral of more debts soon. Refrain from taking personal loans for gambling as it is a terrible idea!
Stock market investment–
Investing in stocks is equally risky than gambling, especially if you do not know the market. If you want to invest in stocks, consult professionals but never take out a personal loan for the same. Skilled professionals will understand your profile and advise you to invest lightly. They often guide you; however, you must never use a credit for the task. The stock market is very unpredictable, and in case it falls, you will lose all your hard-earned money. Invest if you wish to but with a small part of your savings to avoid getting trapped into mounting debts.
Investing in a new business venture–
Never take out a personal loan for financing in a new business venture. There are other better alternatives available for business financing like angel investors, loans for small businesses, etc. Speak to an excellent financial advisor to know more about them but do not make the mistake of taking out a personal loan as this is a bad idea.
Never take a personal loan for a friend–
No matter how strong and loving your friendship seems to be, never take out a personal loan in your name for a friend. The loan will be your responsibility to pay back to the lender. In case you default or miss the payments for any reason, this will have severe repercussions on your creditworthiness and score.
Two questions to ask yourself before applying for a personal loan-
If you are pondering on whether you should take a personal loan or not, ask yourself the following questions-
- Do you need a personal loan desperately?
- Is the loan for an item that is appreciating in nature (home improvement, car repairs, wedding costs, etc.)?
If the answer to the above two questions is “yes,” go ahead and apply for a personal loan.
The application process for a personal loan is convenient and straightforward. It can be done online from the comforts of any place. Research thoroughly for a credible lender and compare different websites to get the best rates.
To qualify for a personal loan, you should have a constant source of employment and should be above the age of 18 years. The interest rates will depend upon factors like your credit score, debt to income ratio, and other conditions that the lender wants to know about. The application form needs to be filled in correctly online. Attach the documents requested for before you apply. The approval process is fast and generally takes about 24-72 hours to be approved. Once the loan is approved, the cash requested will be credited to your bank account immediately.
