The Pros and Cons of Personal Loans (2024 Guide) (2024)

FAQs

What are the disadvantages of a personal loan? ›

As of November 2023, the average interest rate on a personal loan with a 24-month term was 12.35%, according to data from the Federal Reserve. So, by using a personal loan to pay off your credit card debt, there could be significant savings, as the average credit card rate is currently 21.47%.

Taking out a personal loan isn't bad for your credit score in and of itself. However, it may affect your overall score for the short term and make it more difficult for you to obtain additional credit before that new loan is paid back.

You may not see much effect until you're at least 30 days late and reported as delinquent. Letting your account move from delinquency into default (usually 90 to 120 days) can lead to collection calls, the potential for lawsuits, a lien on your home, or garnishment of your wages.

Summary. If you take out a loan of £5,000 over 5 years with an APR of 12.5%, your monthly repayment would be approximately £115.70.

Requirements for a $5,000 Personal Loan

Requirements for a $5,000 loan vary by lender. But in general, you should have at least Fair credit, which is a score of 580 or above. Lenders may also look at other factors, such as your income and your debt-to-income ratio (DTI), during the application process.

Banks typically offer better rates and the added security of working with a well-established lender, but online lenders are often quicker and easier to qualify with. The best option for you depends on your finances and funding needs.

Which bank gives you a loan easily? ›

The easiest banks to get a personal loan from are USAA and Wells Fargo. USAA does not disclose a minimum credit score requirement, but their website indicates they consider people with scores below 640, so even people with bad credit may be able to qualify.

Wondering if you can pay off a personal loan early? The good news is yes, usually you can. If you receive a cash windfall, using the money to clear debt ahead of schedule can save on interest.

In addition, you shouldn't use loan proceeds for purchases that will violate your loan terms, which may include gambling, tuition, a house down payment, or anything illegal.

Types of high-risk loans

If you stop making payments or default, you can lose that collateral. The value of the collateral can vary widely, depending on the loan amount. Secured personal loans, mortgages, auto loans, home equity loans and home equity lines of credit (HELOCs) all fall under this umbrella.