Indiscriminately adding to your personal debt is never a good thing, but there are times that it makes good sense to apply for a loan. A personal unsecured loan often carries a high percentage rate but there sometimes it really is a good idea to take out this kind of loan.
With all of the other forms of credit available, from credit cards to equity lines and other secured loans, it is important that you understand all of your options. Carefully consider all of your options and make the best financial decision that you can. Here are some excellent reasons why a personal loan may be a good idea:
Good debt is any kind of debt that allows you to secure an asset that increases in value. Using an unsecured loan to increase your schooling- a student loan- is an example of good debt, you are investing in continued education that will make you more valuable in the workplace.
Consolidating higher interest credit cards is also a great reason to get a personal loan. While unsecured personal loans can come with a hefty price tag in the way of the rate, chances are you may have some credit cards that have an even higher rate. Paying these off with a debt consolidation loan will save you money.
Sometimes there is a great need and simply no other options. If you have absolutely nothing that can be used as collateral but need funds to cover unexpected expenses a personal loan can provide the financing you need.
This is not something that should become a habit, the fees and high APR are a great way to seriously hurt your financial condition, but for a one time unexpected need this may be a welcome option.
Despite the good reasons to take out a personal loan there are several drawbacks to keep in mind:
A unsecured personal loan will have a high interest rate and worse terms than a secured loan. The reason for this is that an unsecured loan carries a higher risk for the lender than a secured loan. The higher risk for the lender means higher rates for you.
Using these loans also eliminates some of the possible beneficial affects of having a secured loan, particularly a home. An equity loan or line has a potential tax benefit, a business loan has the same. An unsecured loan does not have this option.
A personal unsecured loan may be the right product for you, but do your homework and exercise due diligence to ensure that you are doing what is best for you. Not all loans are created equal. Only you can determine if a personal loan is a good idea in your situation.