Should I get a Personal Loan?
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Should I Get a Personal Loan?
You might consider a personal loan in the event that you’re consolidating debt or need to fund a large expense like a home remodel.
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Updated on May 13, 2022
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A personal loan is a great way to consolidate high-interest debt or fund a large expenditure like a home improvement project. The interest rates for personal loans can be lower than those on credit cards, especially if you have good credit.
But financial experts typically recommend against taking out a personal loan to pay for a vacation or the latest flat-screen television. When it comes to purchases with discretion like these, it’s recommended to use a less expensive option like a 0%-interest credit card or, perhaps savings.
What to know about personal loans:
The personal loan is unsecure and is able to be used for almost any purpose.
Applicants with high credit scores and low debt often get low rates.
A personal loan can be a smart method to consolidate high-interest debt.
Credit cards with low interest or savings are ideal for vacations or discretionary spending.
How do you get a personal loan?
Personal loans are a form of credit that consumers are able to get and use for every reason. In contrast to auto loans Personal loans aren’t required to be allocated for a particular purpose.
Personal loans are also known as installment loans when you’re approved for a loan, you’ll receive an amount of cash in one lump that you pay back in fixed amounts every month until the loan time runs out.
To determine if you are eligible for a personal loan, a lender will assess your income and credit score to gauge your ability to afford the loan. Credit scores that are high as well as a high income and low debt typically receive the best rates.
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What are the times when a personal loan is a good idea?
A personal loan is a great option when it’s cheaper for you than other forms of credit, and you can afford the monthly payments for the length of the loan duration.
Here are the most common motives to apply for the personal loan:
Consolidate high-interest debt A personal loan is similar to expensive credit card debt, into a single payment. In the ideal scenario, the personal loan has a lower interest rate than your existing debt and lets you pay it off faster.
For instance, a borrower with good credit has two credit cards with the total balance of $20,000. with an annual interest of 24.99%. Each month, they pay the monthly payment of $400 for each card. By rolling those obligations into a single personal loan with an interest rate of 18% paid in three installments, the borrower will save $2,770, according to NerdWallet’s .
Home improvements: A project is a good idea particularly if it can add the value of your house. It will help you avoid accruing credit card debt, or having to pledge your house as a property, as with an equity home loan.
How can you obtain a personal loan
The process starts by the process of assessing your credit score. Then, you can assess your creditworthiness and fix any issues.
Then, calculate how much you’ll need borrow and then calculate estimates of the rates. This will give you the information you need to be pre-qualified — getting a sneak peek at the deals you could get from a lending institutionand comparing the possible rates offered by banks, online lenders or credit unions.
Also, think about other credit options like 0%-interest credit cards or secured loans or adding the co-signer. Before committing to a finance option, make sure you read carefully the small print of the agreement to determine the amount of fees, and learn more about direct payment to creditors or flexible payment dates.
If you decide to move forward, gather the required documents so you are ready to submit your application for the loan formally.
Find out if you’re pre-qualified for a personal loan that doesn’t impact your score on credit.
Just answer a few questions to receive personalized rates for our loan partners.
Loan purpose Select your option Debt Consolidation Home Improvement Medical Credit Card Consolidation Auto Motorcycle Major Purchase Begin a Business Education IRS Tax Debt Other
The amount of the loan
Credit score Select your option Very Good Good Fair Poor
Employment status Select your option Full-time Part time Self-employed Unemployed Military Retired Other
Check if you are pre-qualified
What are the times when personal loans not make sense?
The discretionary expenditure Personal loans are an expensive finance option for non-essential expenses, like an extravagant wedding or dream vacation. For larger purchases, you should consider a personal loan so you can avoid finance charges altogether.
Medical costs: Medical bills can often be paid through an appointment with a doctor or medical credit card, rather than a personal loan. Think about a personal loan only if you can’t obtain better terms.
Emergency expenses: Rainy-day and emergency cash are often the best courses of action to cover emergency expenses. Personal loans can appear cheaper and less risky than other options like payday loans, but they are still subject to higher interest rates, particularly for those with bad credit. Here are some local resources for .
About the authors: Jackie Veling covers personal loans for NerdWallet.
Ronita Choudhuri-Wade covers private loans to NerdWallet.
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