Published in: Personal Loans | Oct. 2, 2020
By: Christy Bieber
There are pros and cons to getting a personal loan.
Right now, for millions of Americans, times are tough. It's understandable if you can't pay the bills with the country in a recession and COVID-19 still a serious threat. But you'll need to explore solutions to help you get through.
One option is to secure a personal loan. While this approach can work, it's not necessarily the right option for everyone. Here's what to consider to help decide if it's the best approach for you.
If you're thinking about borrowing to cover the bills, the first big question is whether you can qualify.
Lenders typically check your credit score and sources of income when deciding whether you can borrow, how much you can borrow, and what rate you're charged to borrow. If you're struggling to make ends meet because of a lack of income, you may not be approved for a loan.
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.
While there are options, such as secured loans backed by collateral or getting a cosigner, these won't be available to everyone. So before you count on an influx of cash from a personal loan lender, shop around to see if you qualify and to compare rates and terms.
A personal loan can be an affordable way to borrow, and if you take out a fixed-rate loan, it provides predictability. You'll know when your payments are due, how much they will be, the total cost of borrowing, and how long it will take to become debt-free.
But there are other options. If you can afford to pay for necessities without a personal loan, that's the best alternative, because you won't make all your purchases more expensive by borrowing -- with interest -- to cover them. Cutting your budget and looking into side hustles that you can safely do during the coronavirus pandemic might make that possible.
Borrowing from friends or family members may also be a better option, since you don't have to get approval from a lender. But that's not possible for everyone, and some people don't want to ask loved ones for a loan.
A 0% APR credit card can be a good alternative if you can repay your balance before the introductory promotional 0% rate expires. You won't have to pay added interest costs with this approach.
You may also be able to borrow at a lower rate by securing a home equity loan or doing a cash-out refinance, especially since mortgage rates are near record lows. But there are serious risks to that approach, as you could lose your home if you're not able to pay back the loan as promised.
If you need to borrow, don't want to worry about the possibility of high interest rates when a 0% credit card rate expires, and aren't willing to jeopardize your home, then a personal loan is often your best option.
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.
Before taking out a personal loan to pay the bills, consider the pros and cons. Some of the advantages include the following:
On the other hand, here are the downsides:
If you've weighed the advantages and disadvantages, explored your other options, and decided a personal loan is the right way to pay the bills, borrow as little as possible to keep repayment costs down. And avoid borrowing if you can't afford the monthly payments, since late payments could damage your credit score.
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.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2020
The Ascent. All rights reserved.