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.
