Personal loans are taken to fulfill various needs and desires. Some people take out a personal loan to obtain a little extra cash to cover expected or unexpected bills, send your child off to college, or for various other reasons. There are times when personal loans are the right choice for the extra funds you need. Some short-term personal loan options include payday loans and cash advances. Personal loans are typically short-term loans with loan amounts of less than $2,500. Consider other options if your needs require longer terms or larger loan amounts. Whatever the loan type you choose, do your homework first so you can make an educated decision about the option that is right for your personal financial situation.
Home Equity Loans
If you are homeowner, then a home equity loan or line of credit may be preferable over personal loans that also tend to carry a higher interest rate than equity options. The primary difference between the two types of loans is the collateral. Personal loans typically do not require you to put your home on the line, but equity loans do. An equity loan option also requires that you have equity in your home that you can borrow against. In a suffering housing market, this may be a challenge.
Credit Card Loan
Another short-term solution to a cash crunch is to take a loan out on one of your credit cards, which is often called a cash advance. Most credit cards charge a cash advance fee (a percentage of the amount you borrowing with a minimum amount fee such as $10). The interest rate charged by your credit card for a cash advance may or may not be better than the rate charged for personal loans. If you have to go this route, be sure to choose the credit card with the lowest interest rate on the cash advance and the one you carry the lowest balance on. The reason you should choose the card with the lowest balance is that when you make payments on the card, the payment is applied toward the credit card purchase balance first and the cash advance balance second. In situations where you need more money than is available to you as a cash advance on your credit card, then personal loans may be one of the only options.
Personal loans tend to be easier to obtain than other types, which is what makes these types of loans attractive. Other times, personal loans are the only option because of bad credit, lack of collateral or a myriad of other reasons. When it comes down to deciding whether personal loans are the right option for you, you’re the only one that can decide.