If you’ve been considering getting a personal loan for quite some time now, you probably have a good reason for it! But, is it the right move to make if you’re trying to sort out your finances? After all, a personal loan is borrowed money from a lending institution you’d have to pay back on time.
All kinds of loans come with their own set of risks, so you need to have a clear goal and a financial plan in mind if you plan to borrow money for good.
A personal loan can be helpful in a lot of situations, especially if you need cash fast to cover unpredicted expenses. You should also know that there are two types of personal loans we’re going to cover in this article: secured and unsecured.
The more you learn about what it means to get a loan for your expenses, the sooner you’ll be able to make a decision on whether you need one or not. It’s smart to be cautious and not rush your decision because it can impact your finances.
If you’re supporting an entire family, for example, you have to be careful about what financial decision you make. But, let’s get back to explaining personal loans.
Secured personal loans
A personal loan secured by collateral is referred to as a guaranteed loan in case you didn’t know. The concept of a mortgage, which refers to a specific kind of loan that uses the equity in your home as collateral, is undoubtedly already familiar to you.
For example, let’s say you make the decision to obtain a personal auto loan at a lower interest rate than what is provided by the dealer. In this scenario, your vehicle would act as the collateral to secure the loan.
Different lending institutions and lenders offer this option to consumers because they’re aware that, in the event you don’t make the payments on the loan, they have the ability to reclaim the asset serving as collateral for the loan.
Therefore, you really need to think things through if you decide to go with a secured personal loan. Sure, the interest rates are lower, but you run the risk of losing an important asset to the bank if you fail to repay the loan on time.
Are you willing to take that risk? In most cases, responsible individuals have no issues with repaying the loan and the bank doesn’t seize any of their assets. If you think you can handle the same thing, then go for it!
Unsecured personal loans
You don’t have to worry about providing collateral with an unsecured loan. That’s the major difference between them.
But to get approved for an unsecured loan, you’ll need to have a stronger credit score. The lender will make the assumption that you’ll continue to properly pay back your debts as you have in the past, so they’ll want to see evidence of this. Check out this link to find out more https://www.fool.com/the-ascent/credit-cards/articles/4-reasons-you-shouldnt-ignore-your-credit-score/.
Because the lender is taking on a greater risk by loaning you cash not backed up by an asset, be prepared to face much higher interest rates than with a secured loan. You should keep in mind that you might be able to acquire a cheaper interest rate on a personal loan if you refinance it at some point in the future. But, refinancing is a whole other branch you can explore in the future.
Also, since your assets are not on the line, the lending institution won’t be able to seize them at all. But, do the math in advance if it’s worth it to handle higher interest rates every single month. It might make matters worse for your finances and leave you in even bigger trouble.
The smart thing to do here is to research different lenders and compare their interest rates. Choose the one that makes the most sense for your wallet.
Should you get a personal loan?
The solution relies on the goals you wish to accomplish. If you want to consolidate many payments into one fixed payment with a potentially reduced interest rate for the purpose of debt consolidation, as was explained above, then the right thing to do would be explore the option of getting a personal loan.
One of the many reasons people take out personal loans is to make certain improvements on their home. Remodeling your home can add to the value of the property and overall make you happier with the changes you’ve been waiting to do for so long. Using the money from a personal loan makes the most sense, as opposed to spending all of your money from your credit card.
Investing in your own home is always a good idea, especially if you plan on selling it in the near future. With the extra money you make from the sale, you can cover a significant portion of your debt in no time.
People often use personal loans as an alternative to payday loans, which are short-term loans that might help you fill a gap in your finances but come with ridiculously high interest rates that are likely to put you in a far worse financial situation than you were in before you took out the loan.
If you’re looking for a way to weather a financial storm and get back on your feet, a personal loan can be a better choice than a payday loan.
Last but not least, if you låne uten sikkerhet, you can cover costs related to moving, medical bills, educational bills, or even the expansion of your business. All of this sounds amazing, right?
Conclusion
Whether you get a personal loan or not depends entirely up to you and how you handle your finances! It’s important to take the time to look through all of your options before contacting a lender for good. Ask for recommendations on different lenders until you find the one that offers the best deal on the table.