Person loans are great options for many Americans who are looking to make a large purchase, consolidate debt, or reduce high-interest payments they have. However, many consumers don’t understand how to secure a personal loan or simply assume they won’t qualify.

Before dismissing the idea, you should learn about the pros and cons associated with these loans. Once you do your homework, you might discover it’s the right course of action for you.

Benefits of Personal Loans

Personal loans, unlike mortgages and car loans, can be used for any expense. For instance, if you lost your job or find yourself with high medical bills and need fast access to cash, you can obtain it through a personal loan. Under the right circumstances, personal loans offer many benefits.

• Good interest rates: Interest rates on personal loans are often much lower than those associated with credit card loans.
• No collateral: Unlike a home equity loan or car loan, your personal assets are safe.
• Debt consolidation: If you’re paying high interest on several different credit cards, you can consolidate them into one bill with a lower interest rate.
• Make a large purchase: Personal loans are a great option if you don’t want to use a credit card to make a large purchase(s).
• Fast approval: Many lenders offering personal loans approve applications quickly.

Consumers often prefer how personal loans allow them to borrow a specific amount of money to cover their precise needs with one monthly fixed payment, making it easier to maintain and track.

Disadvantages of Personal Loans

Like any kind of debt, people put themselves in a risky financial standing with personal loans if they’re not careful about what they’re borrowing. Before signing on the dotted line for a personal loan, it’s important to consider the disadvantages and how they apply to your personal situation.

• Poor interest rates: Even though personal loans can come with good interest rates, they might not be lower than rates associated with other types of loans.
• Risk of generating more debt: If you have a debt problem, clearing credit card balances to consolidate existing debt into one payment is a smart strategy. However, it only works if you make a commitment to not generate new debt on your newly cleared credit cards.
• Origin fees: It’s common for personal loans to come with an origination fee, some come at higher interest rates, so be sure to shop around.
• Prepayment penalties: Getting rid of debt is good, but not if it means being penalized. Make sure you understand any terms associated with a personal loan about paying it off early.

One of the most significant problems associated with personal loans are scammers looking to prey on victims who need money fast. Know the warning signs and do your due diligence before agreeing to any loan.

How Can I Get a Personal Loan?

If you’ve evaluated your situation and decided a personal loan is the best route, you’ll need to get a personal loan pre-approval to check your eligibility with specific lenders. This isn’t a binding offer, and is a good way to ascertain what interest rates and other loan terms you can receive before you apply.

• Check with several lenders (this won’t hurt your credit score) and see what details they take into consideration for borrower approvals.
• Understand credit term lengths.
• Be prepared to supply income and other financial information on the actual loan application.

Many different lenders offer personal loans as an option to borrowers. A good place to start is with your bank or credit union. If these don’t appeal, look at nonbank lenders or peer-to-peer lenders to see if they offer more attractive terms.

Personal loans aren’t a good option for everyone, but many consumers find them to be the ideal solution.