Personal Loans: What You Need to Know
Even with the best budget planning, you can find yourself in a financial pinch. It happens when the washing machine turns silent beyond repair or your car tires are no longer safe for driving. It may even be an unexpected trip to care for an ailing family member. Whatever your circumstance, when it happens, you need solutions.
It's easy to feel overwhelmed, but there are funding tools available to help bridge the gap. One option is a personal loan, which is a loan with no collateral property as a securing interest. According to a Federal Reserve survey, ten percent of credit applicants in 2016 applied for a personal loan. If you haven't heard of it before, a personal loan may be something to consider if you need extra cash.
What Are the Advantages?
When you need money quickly, a personal or unsecured loan affords a faster approval process than a secured loan. Unsecured loans often have a lower interest rate than credit cards, which makes them a popular choice for debt consolidation. Another key advantage of a personal loan is the freedom to use it for any expenditure. How it's spent is completely up to the borrower. Worried about that broken washing machine? You can replace it and buy a new set of tires. You can even use a personal loan to cover vacation expenses.
Budgeting is straightforward with a personal loan. Since the interest rate, number of payments and payment amount is fixed, there are no surprises.
Are There Disadvantages?
A personal loan isn't always the best choice. Depending on your needs, you may be approved for a secured loan with a lower interest rate. For example, if you're buying a car, a secured auto loan will have a lower interest rate than a personal loan of similar value.
Since the loan is unsecured debt, a default is handled differently. There are no assets that can be directly liquidated for the debt. A default can result in a significant credit score drop, financial fee penalties, lawsuit and even wage garnishment.
For those who are consolidating debt, it's important to avoid overspending. Debt consolidation with a personal loan hasn't reduced your debt, it's simply adjusted it into a single balance. If you are having difficulty paying your debts, the Federal Trade Commission recommends contacting your creditors directly to discuss a modified payment plan to help get you back on your feet.
Making Your Decision
Whether it's the washing machine, car tires or something else in life that hasn't gone as planned, you have options. You can stop by your neighborhood Coosa Valley Credit Union location to see if a personal loan is the best fit for your situation.