The Facts About Personal Loans

It sure sounds tempting.  Borrow a lump sum of cash from a bank or credit union, and use it to pay down your bills.  Use it to put a down payment on a home, to purchase an automobile, or take care of some big medical expenses.  No matter what your reasons are for wanting to take out a personal loan, there are many factors you should know going into the process.  Trust us- an informed borrower is a much happier (and richer) one.

First of all, be aware that there is no such thing as free money.  Loan companies that offer to lend you thousands of pounds at once have no intention of doing so at their own expense.  Many personal loans require collateral.  Whether it’s in the form of your home or your car, you will often be expected to put something up against the balance of the loan, in case you default on your payments.  If you’re taking out the loan to purchase a home or a car, of course, your new purchase will be repossessed if you don’t pay up.  But even personal loans with no particular, stated purpose often have to be counterbalanced in some way; and that way could involve signing over your possessions if you’re not careful.

Secondly, even if you are not required to put up collateral for a loan, be very aware that you’re still paying for the use of the money.  Personal loan agencies are often touted as having higher interest rates than any other type of financial transaction- in some cases, they surpass even credit cards.  Again, there is reasoning behind this.  No loan company could stay in business if they let anyone walk away with their cash.  They need to collect on the balance somehow.  Just remember- the worse off your credit score is when you go in, the higher your rates will be, and the sooner you’ll want to pay the balance back.  Also, chances are that those with lower credit scores will not be able to borrow as high of an amount as others, and the terms will be stricter.

Speaking of credit, be wary of companies that guarantee you a personal loan with no turndowns for credit problems.  This is not to say that they won’t give you a loan, but if you’re on the far end of the spectrum then your rates are going to be sky-high.  If that’s your situation, and you have to go to these no-turn-down lenders in order to get your personal loan, it should be a sign that this isn’t the thing for you to do at this time.  Shop around and do some rate comparison.  And if you still can’t do any better, then it might be best to wait six months or a year.  Work on your credit score and then reapply.  If the need for cash is pressing, then consider payday loans or even opening a secured credit card. 

Personal loans are a fantastic tool.  You just have to know the right- and wrong- times to use them.

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