Personal loans are a form of credit that many prefer over high-interest credit cards due to their typically lower-cost interest rates. While there are many reasons why one would take out a personal loan, it’s important to know when you should take one out and when you should refrain from making use of a personal loan.
This is because their rates can range from 3% to a staggering 37%, depending on the loan terms. And while taking out a personal loan enables you to pay at a fixed monthly rate, it’s not really something that everyone should be utilizing as there may be better financial options.
To help you figure out whether or not you should take out a personal loan, we’ve put together a checklist of three indicators that personal loans aren’t for you. If one of the items on this list applies to you, then you should definitely think twice before taking out a personal loan.
You Don’t Need a Large Sum of Money
The first thing that you’ll want to consider is the sum of money that you need to borrow. If you don’t need a large sum upfront, then personal loans may not be for you. This is because there’s usually a minimum amount that you’re required to borrow in order to be considered for a personal loan. So if you’re in a pinch and need a couple hundred dollars, then you may want to look elsewhere. Remember, the last thing you want is to borrow more money than you need because you will just be operating on a loss due to the rates that you’ll be needing to pay.
The Loan Is a Short-Term Solution
Aside from the amount of money, you’ll also want to consider the reason why you’re borrowing money in the first place. If you are in a financial bind, then it’s definitely worth considering taking out a personal loan. However, you may want to rethink this for less severe issues. The last thing you want to do is to take out a personal loan just so you can go on vacation or buy something that you don’t really need. For cases like this, it may be better to use a credit card as it won’t take on as much unnecessary debt.
You Have a Home with Enough Equity
Lastly, if you own a home that you have equity in then it might just be more cost-effective for you to borrow against it as the rates are often better than that of a personal loan. Equity, for those of you who don’t know, is the difference between what your home is with and how much you still owe on your mortgage. It’s basically a portion of your home’s value that you already own even if you haven't’ completely paid off your mortgage. Home equity loans are generally low interest loans that are easy to qualify for because your home is used for collateral.
Don’t get us wrong, personal loans can be quite useful especially if you find yourself in a tricky financial situation. But it isn’t something that you should be overusing. We hope this article proves to be useful when it comes to helping you make more informed decisions about your finances.
Now, if you are looking for personal loans in Murfreesboro, TN for your mortgage, then Hometown Finance in Memorial Blvd is the way to go. We lend a helping hand for our clients installment loans when they need them. Call us to inquire today!