Making the Decision to Borrow
Weighing the Costs of a Personal Loan
When financial needs arise, taking a personal loan from a lending institution like Propser, Lending Club or Springleaf may seem like an obvious means to salvation. Indeed, it may suffice to pay the immediate bills, and that may be the desired course of action, but assuming responsibility for a personal loan is not necessarily as simple as it sounds, and weighing the pros and cons of doing so is highly recommended as the financially responsible way to go.
Lend Me the Money
The obvious advantage with a personal loan is the cash you then have on hand. Personal loans can be used for a wide range of expenses, from education to debt consolidation to medical expenses to home improvement to travel and other expenditures like a wedding or even jewelry. That kind of flexibility means that you can really use the funds as you wish.
Furthermore, personal loans do not place a lien on your assets. Because personal loans do not require a security against the loan, the lender incurs some degree of direct risk. The borrower, however, has substantially less risk. Assets remain in the possession of those who have them and those who do not are often able to obtain a loan anyway, despite the absence of their collateral.
Personal loans can also be attained rapidly, as they do not require the filling out of multiple forms. Lenders like RISE make a point of next-day funding, so if you don’t have the kind of advance notice for your expenses that you would have for, let’s say, a wedding or higher education, a personal loan may be the best option. Especially when “emergency funds” are in demand, a personal loan may pull you out of the dire straits.
Of course, it’s not for nothing that Hamlet’s Polonius famously decried both lender and borrower. The very same structure that allows borrowing to take place without collateral also determines the high interest rates of personal loans, making the money borrowed very expensive money, indeed. If an alternative source of funds is possible, then taking the personal loan may be inadvisable.
Also note that without a good credit rating, you may not be approved for the loan. Eligibility is usually contingent upon “credit worthiness” – fundamentally, your reliability. Moreover, even those who are approved may be subject to higher interest than those with better credit ratings.
To Borrow or Not to Borrow?
So, how to decide? Well, if you have an immediate need for more cash than you have on hand, and if you have no assets to speak of, then a personal loan may be your best bet. If, however, you have possessions that can function as a security against which the loan is established, then you may do better to borrow against that security – and then enjoy lower interest rates, as well.
It is imperative, of course, that you undertake a personal loan only if you have the means of paying it back. Make sure you are able to honor the commitment, not only because it is right, but also because defaulting on loan payments harms your personal credit rating. Last but not least, use that money wisely.