Why You Need to Avoid Personal Loans
A personal loan can be both good and bad for the borrower, depending on how it is granted and how it is managed. Personal loans are effective and helpful in certain ways but there are a few reasons where getting a personal loan is something you should avoid. Here are 3 reasons you may want to look into and reconsider applying for a personal loan.
- Having a bad credit score can affect your interest rate.
When you apply for a personal loan, the bank or lender will check your credit score to identify your capacity to pay. Since a personal loan is a form of unsecured loans, the process by which the lender determines your interest rate involves checking your credit score. Now if your credit score is not performing that well then the lender may need to apply a higher interest rate to recover the principal amount that was granted for loan the soonest time possible.
- Paying more interest rate compared to other credit lines.
Before you take on a personal loan, you have to identify the purpose of your loan as you may be able to find other types of loan that can offer a much smaller interest rate than what a personal loan can offer. As mentioned earlier, personal loans are unsecured types of loan pushing the lender to apply higher interest rates. Try finding other modes of credit that are secured so that it can offer lower interest rates. An example would be getting an Auto Loan instead of a personal loan for buying a car.
- Debt consolidation may not be a good reason to apply for a personal loan.
When using personal loans for credit card debt consolidation, it may not be a good idea to refer from the moneylender review. There are cases once the outstanding credit of multiple credit cards have been paid, the credit cards are swiped and charged again. While new credit charges are made, the borrower still has amortizations that are outstanding in addition to the new credit card debt being accumulated.