When you find yourself needing cash, a quick personal loan may look like a solution. If there are collections agencies that are calling you for a follow up, if your refrigerator is empty and your bills that are unpaid are piling up, you might think about looking for a place to get a personal loan.
However, getting a personal loan can also lead to consequences and they could also make things worse for you. If you get a personal loan without planning about it, you may even find yourself in a middle of a dept, scrambling to pay it down the road, which can leave you dealing with the exact problem that made you get a loan in the first place.
Here are five things that you need to consider before you apply for a personal loan:
- ) Having a bad credit can result to high interest rates
Taking high-interest loan while you have a bad credit is the same as trying to fill a hole using the dirt from the same hole. However, with high credit scores, you can find a loan that has a low interest rate. You must find a loan that has interest rates that will not hurt your credit score.
The rates are higher than the traditional credit card rates. Having a loan with high rates may be difficult to replay and remain solvent. Also, taking out a loan that will hurt your credit score can make it more difficult for you to get out of debt.
- ) The terms are short
Most personal loans have around three year terms, and they are often shorter than the other types of loans or debts. This means that you must make higher payments because you need to pay them off over a shorter period of time. High payments can be difficult for you to prioritize your bills in case you need money for emergencies.
- ) You will pay more interest
There are a lot of people that gets personal loans so that they can pay off their smaller loans, but what they do not realize is that they usually sign up for interest rates that are higher. You need to make a list of all of the debts that you have including the interest rate. You can then compare that with all the personal loans that you see. If the rates are lower for the loans that you have already, then it is better that you keep it.
- ) You might lose protections
Some try to use personal loans to pay off their student loans, which can then have high interest rates. But there are federal loans that also come with a lot of protections and also a lot of benefits, like forbearance and deferment.
If you pay off your student loans with another loan, then you may lose all of the protection of having a loan that is government-backed. Instead of applying for a personal loan, you can pay off your student loans as fast as possible and then you can focus on your other debts.
- ) It may not solve your issues
Sometimes, a personal loan can only go so far and it only fixes some of your problems, but not the ones in the bigger picture. If you have debts and you are thinking of getting a personal loan, you can then ask yourself whether it will fix your financial problems or not.
Many of the financial experts also believe that when you solve a problem about your debt with more debts then it won’t really fix your problem. Before you apply for a loan, you must think about getting an extra job or using an emergency fund or refinancing your debt.