There are times when a personal loan is a good idea, such as when consolidating debt or tackling a home renovation project.
Conversely, there are times when a personal loan doesn’t make good sense. With that in mind, it’s easy to go down the wrong path, which can cost you time and money while adding more financial stress to your life.
Here are five times when a personal loan may be a bad idea:
1. You don’t know why you want it
There are many ways to use a personal loan, but you don’t want to apply until you have a clear idea of where the funds will go.
Are you consolidating debt? Traveling? Paying for your child’s wedding?
If you don’t know why you want it, you don’t need it right now.
2. You can’t afford to make the monthly payments
This is all about reviewing your budget with an eye toward how much available cash you have after you pay your current expenses.
Are you comfortable with the thought of adding a personal loan payment into the mix? Are you confident in your ability to pay it back, even if your income would take a turn for the worse in the future?
3. There are better options for you at the present time
A personal loan isn’t the only way to get your hands on the money you need. Other options are available to you, including but not limited to credit cards, home equity loan, and home equity line of credit.
Compare a personal loan to a minimum of two other options. This will help you understand how to proceed.
4. The fees and penalties are more than you want to handle
There are fees associated with taking out a personal loan, as well as penalties that could come into play.
For example, you can expect an origination fee somewhere in the one to five percent range. Adding to this, there are often fees, such as those for loan processing.
5. You already have too much debt
This one is simple. If you already have too much debt — such as a home equity line of credit that has been lingering — think twice about adding a personal loan to the mix.
You’re better off getting your debt and overall financial situation in order before doing anything else. Adding personal loan debt is likely to make things more uncomfortable for you.
So, there you have it. You now know when a personal loan may not be what you’re looking for.
If you have any questions or concerns, don’t hesitate to contact any bank that offers personal loans. A loan officer can provide you with all the information you’re seeking.
What do you consider the biggest pros and cons of a personal loan? Do you have any experience with this financial product?
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