Personal Loan Rates Have Dropped, But Should You Get One?

If you’re looking at personal loans, you may have noticed that you can get one at a better rate these days than you might have a couple of years ago. Before you get a personal loan, though, you should consider carefully whether it’s the best move for you.

We’ll talk about personal loans in the following article. We’ll cover what they are and who would do best to get one.

What is a Personal Loan?

Before we talk about personal loan rates, let’s make sure you understand what we mean when using this term. A personal loan is a kind of loan that you typically get from a lending entity like a credit union or bank. You generally return that money in monthly payments, sometimes referred to as installments.

When you secure a personal loan, you’re getting a one-time cash payment from the lending entity. You can use personal loans for virtually anything. For instance, you might use that money to buy a car or to make some upgrades to your house.

What Are Personal Loan Rates?

As for personal loan rates, that refers to how much interest the lending entity charges you when you take out the loan. Banks and credit unions that extend loan offers to you are for-profit entities. One way they make money is through the interest they charge when you take out a personal loan.

Personal loan interest rates might range from 10-28%. If you can find one for lower than that, it probably means you have excellent credit.

Pros

When thinking about whether or not to get a personal loan, probably the most crucial factor to consider is what you plan on doing with the money. Earlier, we mentioned the flexibility when you get a personal loan. You’ll have to check with the lending entity when you inquire about the loan, but often, you can use that money any way you see fit.

You can get better interest rates with personal loans than if you use a credit card for a major purchase. Also, you seldom need to come up with collateral if you get this type of loan.

Cons

However, you should consider a few potential cons before allowing yourself to get locked into a personal loan. Some personal loans might come with a relatively low interest rate, but they have what the banking industry calls origination fees. That fee can be anywhere from 1-6% of the loan amount.

Also, if you set yourself up with a personal loan, you’ll probably have a larger monthly payment than if you use a credit card. You’ll typically have a small minimum monthly payment amount with a card.

On top of that, you’ll have a set amount of time to pay off that personal loan, unlike with a credit card. You might have a higher interest rate with credit cards, but you can take as long as you like to pay off that financial obligation.

Who Should Get a Personal Loan?

If you have at least decent credit, it’s not a bad idea to look around and see what kind of interest rates you can find on personal loans from lending entities. If you locate a bank or credit union that offers you a better-than-average rate, you may feel comfortable moving forward.

If you do, you’ll probably want to get a personal loan with either no origination fee or a very small one. You’ll also want to check with the lending entity to make sure there are no restrictions on what you can do with that money.

Finally, you’ll only want to take on this financial responsibility if you feel confident you can pay back the loan during the allotted time. That’s why the best candidates for personal loans are usually those with dependable work situations and steady paychecks coming in.

If you match the qualifications that we mentioned, taking advantage of the low interest rates on personal loans that are available right now probably makes sense.