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Personal Loans Pros Cons

Understanding Personal Loans: A Comprehensive Guide

Whether you’re aiming to pay down holiday debt, cover the cost of a car repair, or fund your wedding, a personal loan can be a swift source of cash, often without the high-interest rates associated with credit cards or cash advances. As a rapidly growing financing option for consumers, the demand for personal loans continues to surge. Here’s what you need to know when considering one.

Repay Your Debt in Installments with a Personal Loan

When you opt for a personal loan, you borrow a specific amount of money for a fixed time period, and pay it back in regular monthly installments. Often, these loans are unsecured, meaning you don’t have to put up collateral, like a house or car. The rate you pay is determined by your credit history and credit score. From traditional banks and credit unions to online banks, nonbank lenders, and peer-to-peer lenders, various sources offer personal loans. Here, we provide some of the pros and cons for those contemplating a personal loan.

The Pros of Personal Loans

A personal loan can be an effective way to consolidate existing debt, such as credit cards. By refinancing your debt with a personal loan, you could potentially lower your monthly payment and interest rate. For instance, as of November, the Federal Reserve reported the average rate on a two-year personal loan was 9.7%, while the average rate on a credit card assessed interest was 13.7%. Therefore, if you’re trying to pay off multiple credit cards, you could consolidate all your bills into a personal loan, making it easier to keep track of payments.

Quick Decisions and Lower Interest Rates

The application process for personal loans is typically more straightforward compared to a mortgage or home equity line of credit, and you’ll receive a quick decision on whether you’re approved. If you are, the funds will generally appear in your bank account within a few days. And for major expenses like a sudden car repair or a wedding, a personal loan typically carries a lower interest rate than a credit card advance.

The Cons of Personal Loans

If you’re using a personal loan for debt consolidation, remember that you’re not actually paying off your debt; you’re merely transferring it. If you transfer your credit card bills to a personal loan, there’s always a risk you may rack up new debt on your credit cards. While you may receive a mailing advertising a great rate for a personal loan, only the most creditworthy customers will receive the teaser rate. Make sure to read the fine print and understand the exact terms of the loan.

Does a Personal Loan Fit into Your Budget?

Before taking out a personal loan, consider whether the monthly payment fits within your budget. Compare loan rates and be aware of potential origination fees charged by the lender, which typically range from 1% to 5% of the loan amount.

Apply for a car loan through our user-friendly application form at Toronto Car Loans. As long as we receive the required information, we can get you approved for a personal loan within 48 hours. Every situation is unique, so feel free to apply today.

*Toronto Car Loans is not responsible for the accuracy of this information, and this information is for educational purposes only.

Disclaimer: The information provided in this article is for general informational purposes only. It is not intended as legal, financial, or professional advice, and should not be taken as such. Always consult with a qualified professional or specialist before making any decisions based on the information provided. While every effort has been made to ensure the accuracy and completeness of this information, no guarantee is given nor responsibility taken for errors, omissions, or updates.

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