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What’s a personal loan, exactly? Technically, it is “a loan that establishes consumer credit that is granted for personal use; usually unsecured and based on the borrower’s integrity and ability to pay.” But what does this mean for the average consumer? Can it be used for benefit, or is it something else to put in the debt instrument graveyard (like credit cards, for many people).
For some events, your emergency fund may not be enough (you do have an emergency fund, right?!), and a short-term loan may be warranted. As per a recent article at Bankrate.com, these loans can carry more favorable terms than credit cards, but the interest rates can become dangerously high. Bankrate suggests taking a look at local credit unions:
“Ninety-six percent of credit unions offer short-term unsecured loans — and more than half (60 percent) will make loans for amounts less than $500, according to figures from CUNA. The average amount borrowed is roughly $2,300. In addition, at least one-fifth of credit unions will make loans under $500 with just “a limited credit check,” says Schenk.”
Terms do vary quite a bit, so as always be sure to look around and do your homework. It is possible to get personal loans for bad credit as well, so check out sites like this and snoop around for the best terms you can get a hold of.
Be wary of lenders trying to sell you more credit than you really need. Due to the usually high interest rates associated with these loans, only borrow as much as you absolutely need to. Personal loans can serve as a short term bailout with more favorable rates than a credit card, but like any debt instrument they can be dangerous and so handle them with care and utilize them only when necessary.