When you are in a financial bind, there are various ways you can get quick cash, but the options are often risky and come with undesirable terms.
Credit cards have sky-high interest rates, and payday loans are even worse, coming from unreputable lenders with unclear terms. Luckily, there is another alternative that is more consumer-friendly and can help you out if you need cash for an emergency or a large expense: a personal loan.
Personal loans are typically unsecured loans that have better interest rates than credit cards, but higher interest rates than secured loans. Personal loans can be a good option for consolidating high interest credit card debt or funding an unexpectedly large expense.
What is an Unsecured Loan?
An unsecured loan, such as most personal loans don't require any collateral from the borrower. Typically when you get a loan you use some form of collateral to back the loans. Collateral is used so that lenders can have something to recoup their money, should you default on your loan. Car repossession and foreclosure are common situations when a borrower has defaulted on their loan and the lender is looking to recoup some of the money lost.
Because most loans are unsecured loans, they have higher interest rates than their secured counterparts. However, they have much lower interest rates than credit cards, making it an attractive alternative for funding.
Though most personal loans are unsecured, there are a few lenders that offer secured personal loans. So, what is a secured personal loan? Essentially, you would use something of value like your car's equity or something else of monetary value to offer as collateral for your loan. A secured personal loan can offer a better interest rate and is often easier to obtain than an unsecured personal loan. But borrowers should beware and make sure they are able to afford to pay back the secured loan, or else risk getting their collateral repossessed.
Of course borrowers should also assess if they can afford to pay back their loan, regardless of the loan being secured or unsecured. Personal loans can be great to consolidate credit card debt, but it's key to treat the root issue and make sure you are not simply signing up for more debt.
Getting a Personal Loan
Are you thinking of getting a personal loan? Consider the following:
- Is it possible to hold off and save up and budget for this instead of taking out a personal loan?
- If getting a personal loan to consolidate credit card debt, look into personal loans rates and make sure you are getting a better deal.
- Be sure to comparison shop to find the best company and interest rate.
- Read the fine print, so you know all the terms and conditions of the loans.
How Can A Personal Loan Help You?
Personal loans are best used for consolidating high interest credit card debt, but they could also be used to help you repair your car or during another emergency. Some people use personal loans for vacations or a wedding, but I think a personal loan should be a last resort in those cases. Because those events are planned, it's better to budget and save. However, in the instance that you need extra cash, but don't want to get into credit card debt, a personal loan can be a good option.
If you feel like you are ready to take out a personal loan, there are a number of reputable lenders that offer both unsecured personal loans and secured personal loans.
Be sure to evaluate the interest rates, any fees, and the repayment terms. Ideally, a personal loan can help you during a time of need, but shouldn't be used flippantly.