Every year, millions of Americans take loans to pay unexpected expenses, pay school fees, to consolidate debts, home improvements and many more. The number of people who take personal loans keeps increasing year after another. Anyone can understand why this is the case, given that loans, personal loans in particular, offer attractive rates, especially for customers with better credits, and the fact that these loans are easy to obtain, requires no security and are available any time you want them. While this seems like a sweet arrangement, it’s important to know whether taking a loan is really worth it.
The good and the bad
Before signing on those dotted lines, it’s important first to consider the advantages and the disadvantages – put everything on a scale and see whether getting one is worth it. If you are considering taking a personal loan, some of the advantages include a generous loan amount, fast approval and of course the fact that you won’t need any collateral other than your slip. Secured loans like mortgage or auto loans may require some guarantee, but providers nowadays offer attractive interest rates and other perks that make it appealing to take one.
On the flip side, interest rates for a personal loan are high. Since they are unsecured, the lender perceives these loans as high risk, so high-interest rates always apply. Other loans may not have high interest rates, but failure to make payment as agreed can significantly affect repayment fees. The inflated rates make it very hard for you to pay a personal loan. Unsecured loans may seem attractive because there is no collateral, but lenders can sue you, and you may find yourself getting hit with a hefty court and attorney fee, not to mention the court may end up putting a lien on your assets.
The main advantage of fixed loans, like a mortgage, is that they have attractive repayment terms, given that you will have to pay for a long time. Personal loans, on the other hand, carry a period of three to four years or even shorter; thus, a lot of pressure is placed on the borrower. If you miss a payment or fail to pay, and judgement is issued against you, this will negatively affect your credit rating.
When is a loan worth it?
A simple answer is when you need it. Some situations in life are unavoidable and you are forced to take a loan; you cannot wait ten years to accumulate college fees, you cannot wait for the end of year bonus to make a necessary home repair or improvement, the medical bill can’t wait; you need a loan to cover these expenses. A lot of people are also taking a loan to consolidate high-interest debts, thereby reducing the repayment amount. Those with bad credits have to take personal loans for bad credit, to boost their credit scores.
When is a loan not worth it?
If you need a loan to sustain a lifestyle that’s beyond your means, then a loan will not be worth it. If you want a loan to finance a wedding or a vacation, then you might end up regretting taking one. Personal loans are easy to access, but they should only be taken when needed, like paying off a debt, or home improvement or improving credit rating or equity. A loan will not be worth it if you aren’t sure you need one. You have to know how much you need, how you will pay, and the implication of getting one.