What are the pros and cons of personal loans?
The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.
One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.
Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).
If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.
It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.
If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.
Many borrowers use quick loans to cover short-term or urgent costs, such as paying for car repairs, medical bills, or replacing broken appliances or electronics. Quick loans often have high interest rates compared with regular personal loans.
Before applying for a quick loan, consider your other available options, such as working out a payment plan or applying for an advance or extension.
Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.
If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.
Generally, bad credit personal loans can be used for the following purposes:
- Debt consolidation
- Paying bills
- Buying vehicles
- Moving expenses
Some lenders restrict how their bad credit personal loans can be used as part of their commitment to responsible lending – be sure to check before applying.
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