More Americans Are Turning to Personal Loans. Should You?

Over the course of your life, you will likely need a large amount of money on various occasions for certain expenditures, such as the purchase of a car, home repair or improvements, or even a much-needed vacation. Many people often use credit cards or cash they have saved, without ever thinking of a personal loan as a viable option.

Credit cards typically have an unfavorable interest rate — when you are able to pay off the balance each month, you can avoid falling into debt, but if you charge a large amount, it can take a long time to pay off the debt, especially if the interest rate is high. Using money you have saved obviously keeps you from falling into debt as well, but drains your account of vital funds that you may need in the future.

A personal loan is often easy to get in varying amounts, at interest rates significantly lower than those of a credit card. You can quickly see if you qualify for a personal loan from your bank or another reputable lender, what interest rate you would receive, and what your expected monthly payments would be.

While a loan is, of course, a debt that must be paid back, because the interest rates are usually low, the payments are much more manageable, and this way you get to keep your savings instead of laying out a large amount all at once.

First and foremost, you need to determine if you will be able to make your monthly payments. Don’t take out a personal loan for more than you need. Even though interest rates are typically low, you will be required to pay back interest on funds you borrowed but didn’t actually need, making your monthly payments larger and causing you to lose money unnecessarily.

Do your research regarding the available lenders. Check the different interest rates and loan terms of banks and lenders in your area — how do they compare to other lenders on the internet? When researching internet lenders such as Credible or Upstart, read reviews and ensure you are dealing with a reputable lender.