The benefits and pitfalls of a personal loan

You can’t plan for life’s eventualities, and you don’t always have the cash that you need up front to support the lifestyle you would like to live. Luckily for you there is such a thing as a personal loan.

Benefits galore:

Personal loans offer flexibility (you can usually choose the amount and repayment term) plus your unique circumstances would normally determine the interest rate you are offered.
A personal loan can mean quick money in your hands, solving a problem such as a burst geyser, a broken fridge or a diamond ring for your engagement. It is fast, simple and safe – if you have the means to pay it back. Obtaining a personal loan is also a simple process. You share your income and expenses with the bank, they do the necessary checks and calculations, and if you qualify (i.e. can afford it in their opinion), you will get the money.

the benefits and pitfalls of a personal loan

But there are pitfalls:

Borrowing money can however have its downside. You need to pay back the cash within a certain time frame, which means that you are locked in for a specific period. You can choose to take longer, but that will mean you end up paying much more interest than you originally would have. This can become very expensive. You also have to pay each month (or stipulated period), and not only when you can.

If you don’t make these regular payments, as outlined in your contract, your once manageable personal loan can become a massive, ever-growing snow ball of debt.

The nitty gritty:

Apply for a personal loanWith a personal loan you are bound to certain rules, such as the interest you pay per amount borrowed, the time in which to pay back, and the course of action the institution can go to, should you be unable to pay back the money in full, and on time.

Should you be unable to pay off the loan (i.e. forfeit the loan) the bank or institution can come and repossess what you’ve bought with the loan, or worse – something else that you own, such as your TV, stereo or even car.

So take heed:

While institutions do a lot of homework to find out if you are able to afford the repayments, they can’t know everything. You need to be 100% honest with them, and with yourself. A quick buck in hand, might turn out to cost you dearly.

On the other hand, if you are responsible, and pay back what you owe, in good time (and it’s even better if you pay it off sooner than necessary), you can really score.

Always make sure you know what you are in for, before you decide to take the step of lending money by means of a personal loan.

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