After the holidays, many of us pause to take inventory of all the spending and where that puts us financially. Sometimes we find ourselves so overextended that we think maybe a consolidating loan to pay off high-interest credit cards and reduce the number of payments might be the way to go. But how do we go about it? Where do we go? What are the important factors to consider?
You need to first understand everything from the key reasons for raising a loan to the factors that you must consider before opting for a lender and the caution to exercise. Here are some key risks to consider:
- Interest rates: Personal loans generally come with high interest rates compared to secured loans, particularly if you have a low credit score.
- Origination fees: Some lenders charge fees to process the loan, adding to the overall cost and must be considered.
- Prepayment penalties: Some loans also charge prepayment penalties for paying off the loan early.
- Impact on credit score: Applying for a personal loan will impact your credit report and may lower your credit score.
- Debt burden: Taking on additional debt is yet one more financial obligation. If you’re struggling already this can make things worse, unless the loan payment is less than all the other monthly debt payments you were already making and are planning to pay off with the loan proceeds.
- More debt: Since you have reached this point, you need to consider your overall spending patterns lest you once again find yourself in a place where you’re financially stretched and need some relief.
