FAQs
If you owe a substantial balance on one or more high-interest-rate credit cards, taking out a personal loan to pay them off could save you money. For example, the average interest rate on a credit card is 23.99%, while the average rate on a personal loan is 11.48%.
What is a disadvantage of a personal loan? ›
Personal loans often come with a slew of different charges. Some loans charge a prepayment penalty that impacts borrowers who plan to pay back their loans early. Others may charge an origination fee that's typically between 1% and 6% of the loan amount. There may also be fees for missed or late payments.
What are the three most common mistakes people make when using a personal loan? ›
Avoid These 6 Common Personal Loan Mistakes
- Not checking your credit first.
- Not getting prequalified.
- Not shopping around for loan.
- Taking out a larger loan than you need.
- Miscalculating fees and other charges.
- Falling behind on payments.
Do personal loans damage your credit? ›
A personal loan will cause a slight hit to your credit score in the short term, but making on-time payments will bring it back up and can help improve your credit in the long run. A personal loan calculator can be a big help when it comes to determining the loan repayment term that's right for you.
Is it bad to pay off a personal loan right away? ›
Yes, paying off a personal loan early could temporarily have a negative impact on your credit scores. But any dip in your credit scores will likely be temporary and minor. And it might be worth balancing that risk against the possible benefits of paying off your personal loan early.
Is it better to go through a bank or lender for personal loan? ›
Higher interest rates and fees: Banks tend to charge higher interest rates and more fees compared to their credit union and online lender counterparts. 12 If you don't qualify for a discount rate, you might end up paying more through a bank than you would with another lender.
What can you not spend a personal loan on? ›
You should avoid using a personal loan to pay for college tuition, investments, basic living expenses, vacation, discretionary purchases and gambling, as well as a down payment and the costs associated with starting a business.
Is there a risk to a personal loan? ›
If you don't keep up with your monthly payments or fail multiple applications, personal loans can harm your credit score. When you apply for a loan the lender will conduct a hard-credit inquiry, which will knock your score down a few points and the amount of debt you owe vs. your annual income can damage your credit.
What is a bad rate for a personal loan? ›
Average online personal loan rates
Borrower credit rating | Score range | Estimated APR |
---|
Excellent | 720-850. | 12.37%. |
Good | 690-719. | 14.87%. |
Fair | 630-689. | 18.40%. |
Bad | 300-629. | 21.93%. |
May 14, 2024
What two types of loan should you avoid? ›
5 Types of Loans to Avoid
- Payday loans.
- High-cost installment loans.
- Auto title loans.
- Pawnshop loans.
- Credit card cash advances.
You can have as many loans as lenders will approve for you, but there are practical limitations. The more personal loans you have, the harder it will be to qualify for another loan. Every time you take out a loan, you'll increase your debt-to-income (DTI) ratio.
What are the disadvantages of unsecured personal loans? ›
Because an unsecured personal loan has no collateral backing it, you may encounter higher interest rates, fees and other things they could limit how far is the loan could go. In addition, the lack of collateral could make it hard for those with lower credit scores to get approval.
What credit score do you need to get a $30,000 loan? ›
Requirements to receive a personal loan
This allows them to look at your history from the past seven years and see whether you've typically made payments on time. For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate.
Do personal loans affect your taxes? ›
Personal loans aren't considered income, so you usually don't pay taxes on them. While a personal loan provides you with a lump sum of money that you can spend like income, you must repay it, which makes it a liability rather than taxable income.
How much does your credit score drop when you get a personal loan? ›
Hard credit check
Hard credit checks temporarily lower your credit score by as much as 10 points. But if you have excellent credit, applying for a loan will most likely make your score drop by five points or less.
Is now a good time to get a personal loan? ›
You might get a better deal in 2024
While interest rates are up right now, things could start to change in 2024 if the Fed decides to cut rates. So next year might be a better time to put a personal loan in place. Let's say you're looking to borrow $10,000 and pay it back over a five-year period.
Is it always a bad idea to borrow money? ›
As a general rule, don't borrow more money than you can handle. Borrowing money is a lot easier than paying it back. Smart borrowing can be convenient and help you achieve important goals like buying a home, buying a car, or going to college.
Is taking out a loan a bad idea? ›
If that's your goal and you have a solid repayment plan, taking out a loan may not be a bad idea. But, if your credit needs work, you may be considered a risky borrower and your lender may charge a higher interest rate than if your credit is good.
Is it better to take a loan or use your own money? ›
When rates are low, it's usually better to borrow the money. Dipping into savings will cost you some earned interest, and when mortgage and consumer loan rates are low, it can work in your favor to borrow the cash. Your savings are long-term.