Personal loans can be an effective way to pay off smaller bills, fund a holiday, or even to pay for a wedding. Before you sign all the paperwork, though, it is important to fully read all the fine print. If you have a hard time understanding the legalities of getting a personal loan, then bring someone with you who can explain the details.
Types of Personal Loans
If you are considering getting a personal loan, there are a few types to choose from. Unsecured loans and secured loans are the two most popular. Secured loans require collateral and a credit check. There is usually a lot more paperwork and questions involved when getting a personal secured loan.
If you do not have good credit, you may even get denied. If this is the case, you can still get the secured loan if a co-signer signs their name on the paperwork, along with yours. However, if you miss a payment or make a late payment, the individual who co-signed with you will be affected.
An unsecured loan has fewer requirements, therefore making it an easier loan to get. There is no collateral required, so even a person that does not own a vehicle, or other types of collateral, can easily get an unsecured loan. For this type of loan, they usually only need your name, address, and social security number for security purposes. They also need your employment information to prove that you can pay a monthly payment.
Generally, there is no credit check for an unsecured personal loan. Once the personal information is entered, the individual will know whether or not they got approved within minutes.
Dangers Of Personal Loans
Before you get a personal loan, you should consider all the pros and cons of these types of loans. If you do not know everything about the loan you are getting, you may end up in financial danger. If you get an unsecured personal loan, for example, the interest rate will be extremely high. Being aware of this is important so you are not surprised about your monthly payment. With most loans, you pay on the interest for the first couple years of the loan. When the interest is higher than normal, you will end up paying double of what you borrowed in the first place.
Secured loans usually have decent interest rates, but it does depend on your credit score. If you barely were approved for the secured personal loan, then your interest rate may be higher than normal. With personal loans that are secured, if you do not make your payments on time, you will ruin your credit score.
Also, if you consecutively miss your monthly payments, then you have a good chance of losing your collateral to your loaner. Paying your monthly payment will increase your credit score and allow you to keep your collateral.
Another danger worth mentioning is where you get your personal loans from. If you get it from a bank or another well-known establishment, then the process should be safe. There are places that appear to be legitimate but are really not. Once they get all your personal information, they have the ability to steal your identity. If you become a victim of identity theft, it is extremely hard to get your life back to normal. Avoid this by checking out the loan business thoroughly.
How Personal Loans Help
Personal loans can help in many ways. For example, if you have five or more credit cards that are two hundred dollars or less, you can pay all of them off with a loan for personal use. This will save you money on interest and will be less stress when it is time to pay the bills. Also, your monthly payment for a personal loan will most likely be less money than the other five payments combined.
Another way personal loans can be helpful to you is if you need to pay for a big event immediately, such as a wedding or a holiday. While it would be nice to always save ahead of time for a holiday or wedding, it is not always practical. When you need money upfront, personal loans can release the stress. All it takes is an application with your personal information to see if you are approved for a personal loan.