Home Money & Finance The Pros and Cons of Taking Personal Loans You Must Know

The Pros and Cons of Taking Personal Loans You Must Know

by Olufisayo
Pros and Cons of Taking Personal Loans

When managing money and paying your bills, you can always use a helping hand. Whether you’re trying to move to a new city, want to remodel your house, or need money to purchase relevant appliances like a dryer, a personal loan is your best friend.

But, at the same time, it’s natural to feel skeptical about going for a loan since you wouldn’t want to accumulate a large number of funds you need to pay back.

After all, more than 300,000 people in New Zealand have debts. About two-thirds of this number are house mortgages, over 20% are student loans, and a minute 10% are other debts.

Getting a loan is not intrinsically wrong. However, before you sign any agreement, you should always weigh the advantages and disadvantages.

Informed decisions save you from immense regret and prevent you from getting stuck in a severe financial crisis. Read on to learn more about what a personal loan can mean for you:

Why Should You Go For A Loan?

If you have been thinking for a while and want to acquire a personal loan, here are some reasons why it’s the best choice for you:

1.     Can Get Utilized For Anything

Personal loans are versatile. Whether you want to go on a vacation you’ve been dreaming of, get that car you have always wanted or throw yourself an extravagant wedding, you can get coverage.

There are no limits to what you can use the money for.

By applying for a personal loan, you can get various quotes on the amount of cash you can access with a feasible repayment.

Remember, This is important because you’ll have to pay back your loan with interest, so sufficient time saves you from worrying and fussing about the money.

As long as the activity you’re not doing is illegal, you can be eligible for any amount, even if you wish to go up to NZ$20,000.

Pro tip – Type in Online personal loans NZ on Google to find a credible resource for securing one.

2.     Allows You To Consolidate Your Debts

Debt consolidation is a process in which you sum up all your loans into one new amount. So instead of making individual payments, you pay a particular loan for one interest rate.

A personal loan allows you to pay off all your credit card bills and outstanding loans until you’re left with a manageable payment for your loan to pay it off.

Most New Zealand-based companies offer you excellent interest rates, quickly acquiring a personal loan. You can get one for a minimal rate of 8.95% while a maximum of 29.95%, depending on how much you can manage.

Different companies in New Zealand also offer you unsecured loans, which have a fixed interest rate and a reasonable repayment timeline. This can save you from falling into another debt.

3.     Build Your Credit Score

When dealing with financial issues like loans and debts, you must know your credit score. About 90% of people in New Zealand don’t know their credit score. While the remaining 10% have a substantial idea of why knowing their credit score is essential.

A credit code uses a scale that ranges from 0 to 1,000. This value allows lenders to gauge your financial health and determine if you can pay back on time.

Personal loans allow you to pay off your debts, which boosts your credit score, making you eligible for more loan opportunities.

If you have a score that goes over 700, you’re well within half of the population of New Zealand and on the safe side for accessing more lenders.

4.     Requires No Collateral

Unsecured loans don’t need collateral for you to access them. When you sign up for an unsecured loan, you don’t have to put your car or house on the line if you cannot make repayments.

The penalties that unsecured personal loans carry depend on the lender, but your assets are safe.

5.     Access To Fast Cash

Emergencies can happen at any time. You may also need cash when you least expect it. Personal loans come in extremely handy in all these circumstances.

The loan application and the approval process are relatively swift, ranging from one day to a week instead of making you wait for months.

Some lenders even offer you the money the next day, preventing you from losing valuable time if you need the cash right away.

However, what can delay a loan is the amount you plan on acquiring. If you’re looking into a five or six-digit personal loan, you will have to wait slightly longer.

Why Should You Hold Back?

Personal loans are not for everyone. If you struggle with maintaining your finances, getting a loan can only make it harder for you to monitor your cash flow.

Here are some reasons why a personal loan is not for you:

1.     Expensive Penalties

You accept the lender’s terms and conditions when you agree to a personal loan agreement. This includes making repayments on a prescribed period.

Even if you have access to funds, the money can cost you more than you bargained for. An inability to uphold your end of the deal results in pricey penalties that can cost you more than the loan itself.

You may have to repay twice the amount or expect a higher interest rate on your loan.

2.     There Are No Interest-Free Loans

Personal loans come with an interest fee. The minimal amount in New Zealand is around 3%. So whether you like it or not, you will have to pay your payments with interest intact, which can lead you to pay more than you want to, depending on the loan you take.

If you acquire a high personal loan, even three percent of the principal amount is a lot of money. This can put you into another financial crisis.

However, even if you manage to find an interest-free loan, these loans are not as straightforward as they seem.

3.     Committed For The Long Haul

Personal loans can take a long time to pay off, often resulting in years. Certain personal loans can take up to ten years to get sorted, and if you’re not good with money. The interest rates also add to the timeline prolonging your repayment time.

You can mess up your credit score. This can get frustrating and prevent you from spending your money as freely as possible since a percentage needs to go into loan repayments.

You may also end up with another debt if you’re not carefully monitoring your cash flow.

Final Thoughts

Personal loans can be helpful if you need help in purchasing expensive necessities. These loans come at various interest rates and allow you to tap into funds as per your requirement.

Most lenders are also flexible with repayment offering you a sufficient window to pay back what you owe. So by signing up for a loan, you’re able to keep up with your expenses without having to live off your paycheck.

On the other hand, personal loans can carry repercussions in the form of heavy penalties that can cost you immensely.

There are also no zero interest options which can make loan repayment hard. If you’re not careful enough, you also spend a good chunk of your life trying to repay these loans.

The bottom line is if you need cash right away and can handle the interest rate without missing a payment for a personal loan.

Photo by Karolina Grabowska from Pexels

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