Downside of Personal Loans When Financing Anything

When it comes to needing financial assistance, a personal loan may be your go-to option. After all, you go to the bank, you request the money and, hopefully, you receive the amount of money you are in need of. Upfront it sounds pretty straight forward, but in many ways, it is anything but.

How a Personal Loan Can Become Big Problem For Your Finance

If you qualify for a personal loan (which is not always a guarantee) there are a number of downsides associated with these kinds of loans. So before you head out to your local bank you need to know the downside of personal loans.

When You Default, The Lender Can Come After You

Hopefully, after you receive your loan you are able to pay it back. At least that’s the plan when you apply for it. But, as is often the case, life happens, and it may prevent you from making a payment. First, making late payments will result in some kind of fee. It may even increase the interest rate on your loan. However, if you fall two or even three payments behind, you’ll default on your loan, which is a major downside of personal installment loans.

When you default on your personal loan the lender will come after you. They will start to call you and harass you. Eventually, a collection agency might take over the loan, or the lender may take you to court. The only way you may be able to get out of a personal loan is through bankruptcy. You should avoid bankruptcy at all costs (whenever possible) as it will stay on your credit report for years.

If there’s even the slightest question regarding your ability to pay back the loan, you need to take this downside of personal loans to heart and avoid the loan.

Personal Loans have Fees that can be costly

Personal loans have fees and are going to come with some kind of interest attached to it. The interest usually is based on a number of factors, including your credit score, the amount you’re borrowing, the length of time you have to pay it back, and the bank you’re taking the personal loan from. However, there are other fees often attached. If you are even slightly late with your payment you will be hit with a fee.

Some lenders even charge you a fee if you overpay or try to pay in full (some locations won’t allow you to pay in full at all). There are some loans that don’t charge you a fee until after a year in time after you took it out, and then suddenly you see on your bill a rather hefty fee attached to it and you have no idea where it came from.

There are a number of cash loans online downside to keep in mind whenever looking at a personal loan. This just happens to be one of the costlier problems and downside of personal installment loans.

Personal Loan Fees

Some Personal Loans have a Prepayment Penalty

When you take out a loan you will want to pay it back. Perhaps your job picks up or you have more money than you need, so in order to improve your financial standing, you decide to pay the loan off in full. It’s the responsible thing to do, after all. It clears up the credit line, helps boost your credit score, and prevents you from paying more interest on a loan you can pay off. The thing is, there are some personal loans that actually have a prepayment penalty attached to it, which is one downside of personal installment loans you should consider.

Basically, if you want to pay off the loan in full and try to do so, you’ll either be denied, or you’ll be charged an additional fee on top of what you were already paying. The personal lender wants to make a set amount of money off of you, and if you try to pay back in full this cuts into their profits, so they won’t even let you pay it back. In fact, these banks would rather see you fall behind so they can charge you more than to have you try and pay it back at once.

There are other locations that set a cap for what you can pay. For example, if you have a personal loan of $15,000. You have the money to pay it all back but the bank only accepts $5,000 max payments. While this does mean you can pay it off in three months instead of one it still represents the interest of potentially hundreds of dollars you’ll end up paying, all because the personal lender didn’t want to accept a full, early repayment.

Personal Loans Can Carry High Interest Check Here

It is difficult to secure a personal loan with a lower interest rate. If you have an excellent credit score, extended financial history with the lender, are in good financial order, take out a loan with a short repayment period, and receive a bit of luck, you might secure a loan with a lower interest rate. But what are the chances you can check off every one of these boxes? If you could, chances are you wouldn’t need to take out the personal loan in the first place.

The exact interest rate of your personal loan will vary, but the thing is many will come with a high-interest rate, fees, repayment penalties, and all kinds of other ways to milk you for more money. There are a number of cash loans online downsides and this is one you probably can’t avoid, no matter who the lender is or how much money you’re taking out.

Your Credit Score can Drive Up Rates

true-cost-of-personal-loanIf you are getting a personal loan with bad credit less than perfect credit score you’ll likely see higher rates. It is difficult to maintain an excellent credit score. Just a single missed payment can pull your score down. If you’re behind on a car payment or a student loan payment you may see your score plummet, adding another downside to personal loans.

Once your score is low it takes months, if not longer, to start to see it climb back up. It may take years to fully reclaim the excellent credit score. And yet, when you have a less than perfect credit score, your interest rate will increase. You may have forgotten about a student loan payment five years ago, or the auto payment didn’t roll over to a new billing cycle and so you didn’t realize a payment was missed which compounds the downside of personal loans.

There’s no limit to the minor issues that may prevent a payment from going through (or from being late), which in turn can affect your credit score for years to come. So this one late payment from years earlier will end up increasing your interest rate and cost you more money now. As one of the other downside of personal loans, it is especially frustrating. It’s always smart to check your credit before getting a loan.

credit score factors

Other Factors such as Income Effect the Cost of a Personal Loan

Different lenders will consider several variables when coming up with not only the amount of money you qualify for but the interest rate. Most personal loan lenders review income when determining your borrowing capacity. If you make more money you’ll qualify for more money. It will also help reduce your interest rate. But if you’re making more money you’ll be less likely to need a personal loan in the first place. So because you’re not making as much money as someone else you’re suddenly less likely to receive a personal loan.

Even if your credit score is solid if you’re making less money you might not receive the kind of loan you’re in need of. Cash loans bad credit cons are numerous and come out of the blue. After all, you’re taking out a personal loan because you don’t have the kind of money you need. And yet because you don’t make the kind of money you need you may not qualify for the personal loan. It’s a catch-22, and yet there may not be anything you can do about this downside of personal loans.

It’s Not a Financial Cure. More Like a Temporary Crutch.

A personal loan is not a financial cure. It’s more of a band-aid or a crutch. It doesn’t actually address the problem but instead covers it up for a short amount of time. Eventually, the money will be all used up and now you’ll owe interest payments on top of what you had owed previously. Some people will use a personal loan to pay off higher-interest credit cards. This can be a good idea, as long as the credit card is not then used. Far too often individuals will take out personal loans to pay off high-interest credit cards but then return to using the credit card, which results in owing twice as much as before.

There are a time and a place for a personal loan (and for any other loan in general). It may be desirable when some fast cash is needed (such as for medical expenses or when a child needs to go to summer camp). However, it should never be used as a financial cure. The cash loans bad credit cons will come back and cause more problems later on down the line.

Poor Credit Loans

Not All Things are Worth Financing with a Personal Loan

A personal loan is readily available. However, there are things that are not worth the personal loan. If someone just wants to take a vacation, purchase new clothing for school, or buy a new purse, these are not worth financing through a personal loan. A personal loan is there for tough times or when a financial investment is suddenly available but someone does not readily have the money at their disposal.

Personal Loans can be a Great Option, Just do the Research

This is not to say personal loans are always bad. In fact, personal loans, when applied properly, can be a great option. It is just important to do the research before applying. While you need to consider the downside of personal installment loans you should also look into when it’s right for you.

Shopping for personal loans for your credit score will save you a lot of time, effort, and inquiries on your credit report. Make sure you only take into account reputable lenders. But how can you know whether you can trust a lender? There are two ways. The harder one is to do your own thorough research.

When Are Personal Loans a Good Idea

There is always a time and a place for a personal loan. In fact, there are times where taking out a personal loan, despite the negatives, is a good idea.

As mentioned earlier, a personal loan to pay off high-interest credit cards can be a good thing, as long as you do not immediately turn around and begin using the credit card again. This can save over the high-interest payments of the credit card.

In a similar method of refinancing, using a personal loan to pay off student loans can be helpful. Some student loans, especially private loans, can have a very high-interest rate. You may have taken out the student loan before you had an established credit history, which likely resulted in a higher than a normal interest rate. A student loan can help you pay off the loans and lower your monthly rate substantially.

There may come a time where you have an investment opportunity. Perhaps there is a business you want to buy into or you are in need of extra revenue for the start-up you’re creating. As long as you’ve done the research and know what you’re getting yourself into, the personal loan is one way to access money for the investment. Whenever it comes to large sums of money it is important to do your research, but as long as you have, this may be one of the better monetary options available.

Should I Consider a Loan From an Online Lender

There is nothing wrong with taking money from an online lender. In fact, online lenders often have lower interest rates than banks. This is because the overhead of an online lender is less than a physical bank location. As is the case with any other loan though you should always do your research. Put int the time to find out the interest rates, the fees, and what it might cost you to take out the loan. If you find the online lender is the best service provider (especially against the downside of personal loans), then yes, you should take full advantage of the online lender. Here’s where to go to find a personal loan lender online.


There are a number of financial options available to you when it comes to receiving money. Whether it is for an investment, to pay off credit card bills, or you’re just a bit strapped for cash, you need to consider all your options. While there are times an installment loan might be right, there are also a number of downsides of personal loans, which is why you should also consider a loan from an online lender.



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