Whether you're short of cash for car repairs or an unexpected trip to the dentist, personal loans can provide a convenient solution. But, personal loan risks can cause complications. Risks of personal loans include the following:
Play Now and Pay Later
If you're borrowing for a one-time expense and know you can repay the loan according to schedule or sooner, you can benefit from a personal loan. Borrowing a personal loan for a vacation or to pay for a spring break bash can send you straight to the "play now, pay, pay and pay later plan." You'll soon have fading memories of the good times but likely won't forget how long it took to pay off your loan.
Desperate Times Call for Desperate Measures
Borrowing a personal loan increases your debt and can damage your credit rating if you can't repay it on time. Borrowing a personal loan to buy groceries, pay your rent or mortgage or to make payments on other debts are signs that you're already too deep in debt. Please contact a certified credit counseling organization for help.
Don't Confuse Personal Loans with Payday Loans
You need money quickly and shop online for a fast loan. Financial organizations offering personal loans generally require a loan application and credit check. Review and approval of your loan can take a few days, but you needed money yesterday. While payday advance loans can be obtained almost immediately, you'll pay a very high price for the convenience. CBS News reports that the average payday lenders charge 391 percent annually (APR), along with fees averaging $55.00 every two weeks. There is currently no limit on how much payday lenders can charge, and rates as high as 1500 percent have been reported. Payday lenders are governed under state laws, which vary. High interest rates and fees can compromise a borrower's ability to meet basic household expenses, which can lead to more borrowing, more finance charges and higher debt.
Using a Personal Loan to Pay Off Credit Card Debt Can Lead to More Debt
You owe balances on several credit cards and want to consolidate debt with a personal loan. This may work, but only if you are certain you won't rack up credit card balances after paying them off with a personal loan. If you have problems with compulsive spending or sticking to a budget, please think carefully about borrowing to consolidate debt.
Risk of Debt Stress to Relationships
Arguments about money can cause major problems within a relationship or family. CNBC reported that financial stress was the leading challenge to domestic relationships as of 2015. It's important to discuss financial issues and find solutions with your spouse or partner; borrowing a "secret" personal loan to solve money problems can create more trouble than relief.
Things to Know
Shop personal loan quotes: Taking out a personal loan from your tried and true financial institution may seem logical, but shopping loan personal loans is helpful for finding your best deal. Request personal loan quotes from multiple lenders and review each in detail before selecting a personal loan.
Know all of your options: Personal loans and credit lines, home equity loans and cash loans from family or friends are examples of potential options. Weigh the pros and cons of each option and choose accordingly. Benefits and risks of personal loans vary according to your circumstances, credit scores and discussing your needs with multiple lenders.
Lenders want your business: Don't hesitate to ask questions or request clarification about personal loans you're considering. You can also attempt negotiations for a lower rate or lender fees for your personal loan.