Pros and Cons of Personal Loans
Personal loans can offer people huge financial relief, and the freedom to make purchases that they wouldn’t otherwise be able to afford. If you have bad credit, don’t panic – bad credit personal loans are relatively easy to obtain and mean that you don’t have to miss out on making purchases that you’ve dreamt of. You also need to understand the personal loans pros and cons before diving in.
There are lots of reasons that people in Australia get bad credit personal loans but some examples include:
- Wedding or honeymoon payments
- Home renovations
- Paying for education
- Emergency medical expenses
- Buying a new or a used car
- Travelling overseas
Before you take out a bad credit personal loan, it’s helpful to understand the personal loans pros and cons involved. You should always think carefully before taking out any type of loan, and if you have bad credit you’ll need to be certain that you can make the loan repayments in order to avoid risking your credit rating any further.
Pros of getting a personal loan:
- Flexibility: personal loans differ from other loans such as a car loan or a mortgage due to the fact that they can be used for lots of different reasons. Many lenders don’t require you to specify what the loan will be used for which can be appealing when making your application. You can use your personal loan to pay for something you may otherwise be unable to afford – just remember you need to be able to pay it off in the loan term agreed.
- Interest rates: generally personal loans have better interest rates than an alternative option for this type of spending which is using a credit card. A bad credit personal loan will be likely to have a higher interest rate than a standard personal loan, but it could still be a better option than spiralling into credit card debt.
- Unsecured: unlike many other loans used for larger purchases, you won’t have to offer any collateral for a personal loan. This is useful if you have bad credit and do not have many assets to offer to your lender to secure a loan.
- Ease of access: personal loans allow you to get the amount you need to borrow, quickly. Generally, the process for personal loans is quicker than other types of loans which means you can get the funds within a matter of days – allowing you to make the purchase that you need or want.
Cons of getting a personal loan
- Getting trapped in debt: many people use bad credit personal loans to consolidate debts (especially from high-interest credit cards). It’s important to remember though that this doesn’t erase the old debt and you can end up digging yourself an even deeper hole.
- Early repayment fees: some bad credit personal loans come with a penalty if you pay off the loan early. This can mean that you end up paying much more for the loan than you had anticipated – and you’re faced with the choice of paying it back for longer, possibly with high rates of interest charged each month.
- High-interest rates: often bad credit personal loans advertise a low-interest rate – but always be wary of this. The low rate advertised is the lowest it can possibly be and probably applies to someone with a better credit rating than you. Most bad credit personal loans will have relatively high-interest rates which you’ll need to factor into the cost when figuring out your repayments each month.
Fixed loan terms: personal loans will generally have a deadline on them – so you need to make sure that you can definitely pay back the loan within the loan term agreed. If you fail to do this, you could end up paying costly fees and damaging your credit score further.
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