Personal loans can be a quick fix for people who need cash in a flash. But with the promises of a nearly instantaneous money infusion, people can be biting off more than they can chew and not even realize it until it is too late.
Unsecured loans are the most common type of personal loan out there. Borrowers can get a quick influx of cash without any collateral, co-signer and with a bad credit rating. The biggest danger of these types of loans come with higher than average interest rates. Since these loans are riskier for the lender to partake in, they will charge consumers more to loan them money.
Other possible dangers appear in the form of exit fees or prepayment penalties. Say you managed your finances properly and had the spare cash to make the last few payments of your personal loan in one lump sum. Many lenders may charge you a pre-payment penalty for paying off the amount too early as well as charging an additional exit fee to close out the loan completely.
Consumers are also in danger that take a personal loan and then don’t manage them properly. For example, it may seem like a great idea to secure a personal loan to consolidate existing debt. However, huge portions of Americans who try that strategy end up with the same debt total within two years. Although they secured the money needed to pay off the first debt, the bad behaviors that got them there still haven’t changed.
When contemplating committing to a personal loan, make sure to read all the terms including the interest rate and payment schedule very clearly. To avoid turning your small loan into a huge mess make sure to locate the best interest rate possible, pay it off in a timely fashion and try to improve the behaviors that may have gotten you in this pickle in the first place.