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Personal loans can be a good option if you must pay for something but don’t have the money to buy it upfront.
The interest rate on a personal loan is usually below the standard interest rate on a credit card, which means your financing charges will be lower. You’ll also borrow a set amount of money and have a fixed payoff period so you won’t have to worry about facing uncertainty as to how much your loan will cost in total or when it will be paid off.
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Despite these benefits of personal loans, though, there could be times when you regret taking them out. To assess how likely this undesirable outcome is, consider these key issues.
Will you easily be able to afford your monthly payments?
The biggest issue that determines if your personal loan will become a choice you regret relates to how comfortably the payments fit into your budget.
If you take on large payments, you might not be able to afford other essentials going forward — at least not without borrowing even more. You don’t want to get trapped in a debt cycle, or feel like so much of your income is going toward loan payoff that you have nothing left for other things.
If your payments are easily affordable and can be worked into your budget while still enabling you to save for the future, cover the basics, and spend a little on fun, then you’re less likely to end up lamenting your choice to borrow.
How long will you be stuck paying off your personal loan?
When you take on a personal loan, you commit your future income to making payments on something you’re buying today.
If you do this for a short time, this may not be a big deal. But if you take a long-term personal loan and are still paying on it five or even 10 years down the line, you might end up wishing you hadn’t committed your future self to these ongoing payments.
Is the item you’re buying really worth it?
The interest you end up paying on your personal loan is going to make it more expensive. So you’ll want to be sure it’s worth the added cost once financing charges are tacked on.
You’ll also likely want to think about how long you’ll be enjoying the item (or experience) you’re purchasing. If you buy something that gives you pleasure for a few weeks or a few months but you end up paying for it for a few years, you could regret the decision to borrow.
Could your interest costs increase over time?
Finally, you’ll need to know the details of your loan and whether your payment could change over time or will stay steady. If your interest rate might increase because you opted for a variable-rate loan, you might regret borrowing if rates go up and your loan becomes costlier.
By thinking about these four big issues, you can make an informed choice about whether taking out a personal loan is a good financial move or a decision you’ll wish you hadn’t made.
The Ascent’s best personal loans for 2022
Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing The Ascent’s best personal loans for 2022.
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