Why you should consider personal loans during the coronavirus pandemic
Millions of Americans face unprecedented personal finance challenges as the coronavirus pandemic continues to affect unemployment rates months after the first case of COVID-19 was reported in the United States.
The Federal Reserve took action in March to encourage consumer spending by lowering interest rates to nearly 0%. Rates have remained low and projections suggest that the interest rate will stay close to 0% until at least 2023.
If you are considering a personal loan, this might be a good time to move forward to take advantage of low rates. Start the application process today.
If you still want to do more research before taking out a personal loan, read on.
What is a personal loan?
Personal loans allow you to borrow funds from a lender to use for any expense. Typically, personal loans can be used for any reason, although some lenders offer specific personal loans, with specific terms, for debt consolidation.
Personal loans differ from mortgages and auto loans in that you receive the money in your personal bank account and can use the funds to cover a myriad of expenses, from groceries to medical bills to debt repayments. , vacations or home repairs. Unlike credit cards or lines of credit, a personal loan has a fixed amount that you can use.
Credible Can Help Compare Personal Loan Companies (and hopefully get you the lowest rates for what you’re looking for).
Benefits of a personal loan
There are several advantages to taking out personal loans, including closing cash flow gaps quickly and helping borrowers pay off their debts in a low-risk manner.
Here are some reasons why you should take out a personal loan:
- Get money fast
- Potentially lower costs
- Debt consolidation
- Maximize savings
Get money fast: If you need cash to cover your expenses, a personal loan can be a great way to get cash fast. If you have a good credit history and a good credit rating, you could be eligible for interest rates as low as 4.99%.
Potentially lower costs: Taking out a personal loan makes perfect sense if the loan costs less than other forms of credit. Many consumers opt for a personal loan as an alternative to the higher interest rates on a credit card.
Debt Consolidation: If you have trouble paying multiple credit cards, a personal loan could consolidate your payments into one and you could save money with a lower interest rate.
Maximize savings: If you choose a personal loan, consider choosing a fixed interest rate to maximize your savings. You should only borrow what you can repay. You can maximize the benefits of a personal loan if you take the time to do some research before you apply.
With Credible’s free online tools, you can find different durations and prices from 4.99% APR in just 2 minutes. Checking rates will not affect your credit and there are no hidden charges.
You can also use their personal loan calculator and find the best personal loan rates.
Disadvantages of a personal loan
Personal loans may not be the best option for your financial situation.
Here are some things to consider before taking out a personal loan:
- Predatory loans
- Pre-closing fees
- Potential debt cycle
Predatory loans: A downside to personal loans is that they can be more expensive. While the average interest rate for personal loans is around 9.5%, some predatory lenders charge interest rates above 100%.
If your credit score is lower, be careful not to apply to online lenders who offer loans to anyone. Use a reputable online tool, like Credible, to compare rates and loan terms from trusted companies.
Pre-closing fees: When applying for a personal loan, look for pre-closing fees. Some lenders charge additional fees if you choose to prepay your loan balance. Additionally, lenders may also charge a loan origination fee, which reduces the amount of money you get from your loan.
Potential debt cycle: If you’re using your loan to pay off credit card debt, it’s tempting to start spending on your credit cards again. If you start spending on your credit cards after using a personal loan to pay them off, you may find yourself stuck in a debt cycle that is difficult to escape.
Although personal loans may have lower interest rates, other considerations could affect your personal finances. Personal loans have a fixed monthly payment and a strict repayment schedule. You have to pay off your loan within a set number of months, which can be difficult if you run out of income.
Be sure to explore your personal loan options by visiting Credible to compare rates and lenders. Experienced lenders will also be able to outline additional fees and monthly payments with you.
How to get approved for a personal loan?
If you want to take a personal loan for an emergency fund or cover unforeseen expenses, you must have a healthy credit history and credit rating. For the best rates, aim for a score of 660 or higher. Additionally, your credit usage score should be less than 50%.
Your credit usage score shows the amount of available credit you are using. For example, if you have a total of $ 10,000 available between three credit cards and you have a combined balance of $ 5,000 between the three cards, your credit usage is 50%.
Lenders will also look at your income. If you have a low credit score, you may still be eligible for a personal loan if you go for a secured loan. A secured loan requires you to put money or some other item as collateral. Alternatively, you can ask a family member or friend with better credit to co-sign the loan.
Personal loans are a useful tool for covering expenses that you don’t have the money to cover, but they are not ideal for all situations. Be sure to review your finances and your loan options before you go ahead.