5 Pros and Cons of Personal Loans

Personal loans help you cover any unexpected expenses that may come your way, like a house repair. While they really come in handy during tough times, they also have a number of drawbacks. 

For instance, you may be charged a high application or origination fee by your lender. Or you may be given a very high average percentage rate (APR).

Therefore, before you apply for a personal loan, it is important to weigh the pros and cons of personal loans so you are completely aware of what you’re getting yourself into. This guide covers all the advantages and disadvantages of personal loans. So read on.

Pros and Cons of Personal Loans

Just like any other type of debt, personal loans also have pros and cons. It is important to consider them before you apply for a personal loan:

Pros

1. Instant Cash

If you are looking for instant cash, personal loans are a great way to acquire fast funding. They are ideal for emergencies as they have incredibly fast funding and approval times. Some lenders like Cash in Minutes even offer same-day funding to help you meet your needs immediately.

2. No Collateral Needed

Personal loans are unsecured loans, which means they are not backed by any collateral. You don’t need any collateral like your house or your car to apply for a personal loan. Therefore, if you fail to repay your loan, your assets won’t be seized by the lender. However, you may see your credit profile take a serious hit.

3. Flexibility 

Loans come with a limitation as to what they can be used for. For instance, if you take out a car loan, you can only use it to purchase a car. But in the case of personal loans, they can be used for various purposes, such as house repairs, debt consolidation, or medical expenses.

They are pretty flexible in terms of the intended use. So if you don’t want to have a limit on how to use the money, personal loans are ideal. They can be used for basically any reason.

4. Lump Sum Payment

With a personal loan, you get the entire payment at once, unlike other forms of credit. This makes it easier to consolidate your debts altogether, make a big purchase, or fund a hefty expense at once. 

What’s more, you get the lump sum payment with a fixed interest rate, which makes it easier to manage and repay your loan.

5. Longer Loan Terms

Personal loans typically have longer loan terms as compared to other types of loans. The repayment term can last for up to 10 years, depending on your lender. What’s more, you get affordable monthly payments in enough time to repay the loan comfortably.

However, do note that the longer your loan term is, the more interest you will end up paying over the entire term.

Cons

1. Higher Interest Rates

When it comes to personal loans, they have higher interest rates as compared to other types of loans. This is mostly because people with bad credit scores are given a higher APR as compared to credit cards or secured loans.

So if you have a bad credit score, we don’t recommend opting for a personal loan as you will end up paying much more to your lender in the form of interest. 

2. Higher Fees and Penalties

When you apply for a personal loan, there may be hidden fees and penalties that will increase the total cost of borrowing. Many lenders require an origination fee of up to 6%. They may also charge a processing fee that is often deducted from the amount deposited into your account.

What’s more, there may be hidden charges and penalties like a late or prepayment penalty. So make sure to inquire about any hidden fees, charges, or penalties before accepting a loan. 

3. Stricter Requirements

Personal loans have more eligibility requirements as compared to other loans. That’s because they’re unsecured loans not tied to any collateral. Therefore, your lender may set stricter requirements for their own peace of mind.

People with poor credit scores have even stricter requirements and may not even be allowed to enlist a cosigner. So if you have a bad credit score, it will be difficult for you to qualify for a loan.

However, Cash in Minutes offers bad credit loans to everyone, despite their credit portfolio. So if you have a bad credit score and are in need of cash, don’t let it hold you from applying for a personal loan at Cash in Minutes.

4. Higher Monthly Payments

When it comes to credit cards, the minimum monthly payments required are pretty small. What’s more, there’s no deadline for paying off the entire bill. 

However, personal loans come with higher fixed monthly payments and you’re required to pay off the entire amount by the end of the loan term. This can be more challenging to manage with all the other expenses you have to bear every month.

5. Bad Impact On Credit Score

If you get a personal loan, there are higher chances of your credit score taking a hit for various reasons. Failed applications, late monthly payments, and hard credit checks can all negatively impact your credit score. 

Monthly repayment history, however, affects your credit score the most. So make sure to pay your monthly repayments on time. 

Bottom Line

If you are considering taking out a personal loan, it is important to weigh all the pros and cons of personal loans so you can make an informed decision. You should also compare all the financing options available to determine whether a personal loan is the right choice for you.

If you are in need of instant cash, however, a personal loan is the right choice. Apply today at Cash in Minutes to secure same-day funding, even if you have bad credit!