Personal Loan Land Mines
Posted May 21st, 2010
by PersonalLoans.org Staff
Like other kinds of credit, personal loans can be a mixed bag. They’re not quite like a home loan, which is almost always good because it gives you a lot of money at a low rate of interest. Personal loans can be a good thing, but they can also be a bad thing.
There are some important things to watch out for when you take out a personal loan, to make sure it’s worth it:
Be sure you can pay it. If you can’t make the payments on a personal loan, you’re going to have problems. If it’s a secured personal loan, such as a loan that you use for a car or boat, the lender can repossess the property. Whether it’s secured or unsecured, not paying it can really screw with your credit.
Watch out for personal loans from family and friends. Yes, these can be a good thing. But if it doesn’t go well, you can mess up everyone’s Thanksgiving dinner with a heck of a lot of bitterness and anger. Think twice before asking family or friends for a personal loan, and even then go about it the right way.
Paying cash is better. There are only a handful of situations in which taking out a loan is better than paying cash, if you have it. A home loan, as we mentioned, is one of those. But for the most part, the meager interest you would earn on leaving the money in a savings account combined with the interest you’re going to pay on the loan just makes it a better thing to pay cash.
Be careful of debt consolidation. You might take out a personal loan to pay off a bunch of credit cards. While that can be a good thing, the danger is that you’ll go out and max out your credit cards again. If you use a personal loan to pay off debt, put safeguards in place to make sure you don’t just go out and accrue more debt.
Photo via Neil Rickards