Personal loans are provided by banks or other lenders that are not secured against an asset (such as your home). These are sometimes referred to as unsecured loans. But are these the best option for you financially?
The pros:
- You may be eligible to borrow more than a credit card.
- Normally offer lower interest rates compared to a credit card with a larger balance.
- It makes it easier to budget because of the set repayment scheme.
- You can choose how long you take to repay the loan. But remember the longer you chose to do the higher the overall cost of interest will be
- You can use a personal loan to repay other loans, which could make your monthly repayment smaller. It is important to be careful when doing this as extending the length of the loan could cost more overall.
- There are usually no penalties for overpayment
The cons:
- Personal loans will have a higher interest rate if you are looking to borrow a small amount.
- The interest rate may reduce the more you borrow therefore leading you to borrow than you need.
- Most banks will not offer loans less than £1000 or shorter than 12 months. This can lead to you borrowing more than you need or can afford.
The obvious ideal situation is to not to let yourself get into a position where you need to borrow money, however if you do need to borrow then this is often the cheapest way.
Ask yourself “Do I NEED this” and “Can I save up and pay that way”.
As Dave Ramsey says “Don’t steal from your needs to pay for your wants”
Being financially sensible and budgeting correctly is fundamental when trying to achieve financial freedom.
Personal Loans are not part of the Quilter Financial Planning offering. We do not advise on or provide advice on Personal Loans. The information contained in this blog is for information purposes only.
