Personal Loans: Pros, Cons & How to Apply

Heritage Personal loans can be a great way to get the funds you need for a big purchase or unexpected expense. However, before you borrow money, weigh the pros and cons.

Benefits of a Personal Loan

Personal loans offer several advantages, including: 

• • • • Ability to fund a big purchase or expense when you need it.
      • Flexibility in using the funds.
      • Fixed interest rates.
      • Predictable monthly payments.

Applying for a personal loan may also be a good option for consolidating high-interest debt. For example, if you're paying the minimum amount due on multiple credit cards and getting hit hard with high-interest rates, a personal loan can help you consolidate the total amount into one lower monthly payment with a fixed interest rate.  

Consumers with good credit can generally access personal loans quickly and without collateral, making them accessible to a wide range of borrowers.

Disadvantages of Personal Loans

1. 1. 1. Personal loans typically come with higher interest rates than secured loans, meaning you may pay more in interest over the loan term.
         
      2. Missing a loan payment or paying late will negatively impact your credit score, making it harder to obtain credit in the future.
      3. Taking out a personal loan could put you at risk of falling into further debt if you're not careful with your spending.
      4. Some lenders may charge hidden fees; therefore, it's crucial to read the fine print carefully.

Common Questions About Personal Loans

Does a Personal Loan Affect My Credit Score?

Applying for a personal loan could affect your credit score short-term. The lender will typically run a hard inquiry on your credit before agreeing to the loan. Your credit score will decrease a few points temporarily. 

Is a Personal Loan Right for Me?

Before you apply for a personal loan, consider your financial situation, including your income, expenses, and credit score. 

Think about the purpose of the loan and whether or not it's necessary. If you decide to take out a personal loan, look for lenders who offer competitive interest rates and flexible repayment terms. 

You should also check for hidden fees or charges, such as origination fees or prepayment penalties. Before applying, make sure you clearly understand the loan terms and repayment schedule, and consider whether or not you'll be able to make the payments on time.

Are There Alternatives to Personal Loans?

• • • You may have the option of borrowing from a friend or family member
    • You may decide to pick up a part-time job (in addition to your main employment) to earn extra income. 
    • You may qualify for a low-interest credit card or a home equity loan if you have a good credit score. 

If you’re considering a personal loan to help you pay off credit card debt, see if you qualify for a balance transfer. 

Balance Transfer vs. Personal Loan

 A balance transfer is a type of loan from a credit card company that allows you to transfer the balance from one credit card (or multiple cards) to one card. Doing so will enable you to take advantage of a lower interest rate or a 0% Intro APR (annual percentage rate) for a period (up to 12 months or more). 

Before researching the best balance transfer cards, look at your current lenders. For example, a card you already own may offer balance transfers. If so, consider this option, as it won't require a pull on your credit report. However, remember that credit cards offering this benefit may still limit the amount you can "transfer." 

In addition, ensuring you're making monthly payments on time and aiming to pay off your debt before the 0% Intro APR period ends is essential. Otherwise, you could end up right back where you started.

Seek Personalized Service For Personal Loans

When shopping for a lender, consider the community banks in your area. If you already bank with a community bank, you should start your lender search there because the relationship you have with the bank generally works in your favor and because a community bank is likely more service oriented.

 Heritage Bank offers competitive personal loans, consumer credit cards, and other lending options to help you cover unexpected expenses, pay off personal debt or make a future investment for your family. The bank also offers experienced bankers at every location who can walk you through your options, so you can make the best decision for you.

We invite you to visit a branch location near you during business hours or schedule an appointment to talk to one of our lending experts.