Is the personal loan right for you? | Taiwan News

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Personal loans have grown in popularity, in part due to growing consumer confidence and the growing number of online lenders offering them.

The credit reporting agency Experian says personal loans have been the fastest growing type of consumer debt over the past year. According to Experian, existing personal loan debt reached $ 273 million in the second quarter, up 11% from the same quarter last year. Although personal loans remain a small portion of overall consumer debt, it is a faster increase than that seen for automobiles, credit cards, mortgages and student loans.

THE BASICS

A personal loan can be used for any purpose, although it is often used to consolidate debt or make a large one-time purchase.

The money is provided in a lump sum and paid back over a fixed period of time – usually a few years – with equal monthly payments.

Consumers love personal loans because they offer an easy solution when they need a large amount of money, like paying for braces or a new roof. And for people who are trying to get rid of a credit card or other revolving debt, the loan is an easy way to budget with lower interest rates than credit cards and with a line of cash. arrived for the refund they can hope for.

The exact interest rate a person pays depends on several factors including their credit rating, credit history, monthly cash flow, and debt-to-income ratio. The stronger your credit profile and history of financial responsibility, the lower the interest rate you can expect.

THE NEED

Consumers use personal loans for a variety of large purchases.

Lending Point, an online personal loan provider, has found that its clients use loans for different needs depending on their age and time of year. Young people, for example, tend to use the loans to pay for weddings and moving expenses, while older borrowers tend to use the money for medical bills and home renovations. CEO Mark Lorimer said this reflects part of the younger generation’s mistrust of credit card debt.

But looking at all age groups, they also follow a seasonal theme – borrowing in December is more than twice as likely to go to medical procedures as it is the rest of the year. Loan applications in August tended to be higher for moves and weddings, while those in February were almost three times more likely to be allocated to taxes.

USE

So what is the right way to use the loan? Experian’s director of public education Rod Griffin said personal loans are best viewed as short-term, one-time loans.

While they’re good for big purchases, they can also be a good idea if you’re struggling to pay off multiple credit cards. However, think about how you got into debt on credit cards and how to manage your budget in the future. You don’t want to take the loan and revive your cards, only to end up in the same place later.

Likewise, if you borrow to gamble, endure an addiction, take a vacation, or bail out a family member or friend in need, you could find yourself in a worse position in the future, said Bruce McClary, spokesperson. word of the National Foundation for Consumer Credit. Advice.

You can get a personal loan from a bank, credit union, or other lender. It is worth shopping around and finding the best deal. Never sign a loan agreement without having a full understanding of all the details, advises McClary. By law, the lender must disclose the interest rate and any associated repayment charges before signing anything.

If you think you need to borrow more later, consider other types of borrowing, such as a personal line of credit or using your credit card.

“Overall, consumers need to remember that credit is a tool to be used wisely,” Griffin said. “A personal loan should be taken out of necessity with a plan in place to pay it off quickly and on time in order to keep you debt-free and maintain a good credit rating in the future.”

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