Published in: Personal Loans | April 20, 2020
By: Dana George
COVID-19 has disrupted the economy and caused many to rethink their finances. Could a personal loan be the answer to your money problems?
As the world struggles to deal with the COVID-19 pandemic, right now may seem like an odd time to consider applying for a personal loan. But if you've recently experienced a job loss -- or if you just want to be ready for the next financial emergency -- a personal loan is worth considering.
If, like millions of Americans, you're feeling the financial crush caused by COVID-19, a personal loan is one way to consolidate debt, lower your interest rate, and save money. Here are some reasons why a personal loan may be the right choice for you.
Perhaps the best reason to take out a personal loan is if it can save you money. For example, let's say you have two high-interest credit cards, both with an interest rate of 17%, and owe a total of $10,500. If you make the minimum payment of $315 per month, it will take you 46 months to pay off, and you'll pay a total of $3,811 in interest.
Now, assume you take out a personal loan for $10,500 to pay off the two high-interest credit cards. The interest rate on your new loan is 6%, and you opt for a 48-month term. Your new monthly payment is $247, and at the end of the 48 months, you will have paid $1,336 in interest, saving a total of $2,475. That's money you can use to pump up your emergency fund.
Looking for a personal loan but don't know where to start? The Ascent's picks of the best personal loans help you demystify the offers out there so you can pick the best one for your needs.
The good news? In this scenario, transferring high-interest credit cards to a card with a 0% balance transfer offer may make even more sense. Of course, it all depends upon how quickly you want to pay the debt off. Read more about 0% balance transfers below.
Let's face it -- stress levels during the days of COVID-19 can be off the charts, so anything you do to simplify your life can help. If paying bills feels like a part-time job, using a personal loan to consolidate them will streamline bill payment and save time.
In 2019, a record 7 million Americans were 90 days or more late on their auto loans, more than 137 million adults reported financial hardship due to medical bills, and 37 million credit card accounts were 90 days or more past due -- all before the COVID-19 outbreak. If you're not among those who are late on payments but worry that a bill may slip through the cracks as you face the new pandemic-related reality, a personal loan can help. It allows you to consolidate your debts into one bill that can be automatically deducted from your checking account each month.
If you decide a personal loan is the best option for you, here are four places you can apply for one:
Few financial options can be described as one-size-fits-all. Personal loans are no exception. Here are three reasons now may not be the right time to take out a personal loan:
A personal loan is not the only way to save money and streamline your financial life. If you have good credit, you may also qualify for a 0% interest credit card. For example, if you transferred $10,500 from high-interest cards to a credit card with 0% APR for the first 18 months, your payments would be $583 per month for 18 months. Yes, that's $268 more per month than it would be if you were making minimum payments on the high-interest cards, but you would have your debt paid off 30 months faster and save $3,811 in interest.
If you're already losing sleep over debt -- whether it's a personal loan, credit card, mortgage, or auto payment -- be proactive. Contact your lender before you miss a payment. Your lender may work with you to remove fees, marks against your credit, or threats of collection.
Want to pay off debt faster? Check out our shortlist of the best personal loans for debt consolidation and cut your monthly payment with a lower rate.
COVID-19 has touched all of us. It's humbling to realize that no one is invincible, and it's natural to restructure our finances in light of what we are experiencing. As terrible as it may all seem, this time of trouble will pass. The goal is to minimize damage today and get to work on a plan for the future.
We've vetted the market to bring you our shortlist of the best personal loan providers. Whether you're looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on our top picks.
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