- March 16, 2017
- Posted by: Alyssa Plumb
- Category: Blog
A personal loan can help you save money
Borrowing money will cost you no matter how you do it, but some forms of credit are much less expensive than others. For example, most people own credit cards and have a lot of credit card debt but it is actually one of the most expensive forms of credit. The interest rates are very high at around 15% APR on average, though it can be as high as 25%. Plus, minimum payments are so low that people often end up paying too little to ever really pay down their debt. You can carry a balance on your credit card forever if you don’t ever pay it off and only choose to pay the minimum payment every month. That doesn’t really help someone who just needs to borrow some fast cash and then wants to pay it off.
The nice thing about credit cards is that you can, in theory, pay it off completely every month and never get charged any interest. That is like borrowing money for free. But unless you are certain you will be able to do so, borrowing on a credit card and trying to make monthly payments on it to pay it off can be fairly dangerous.
Why a personal loan?
One of the ways a personal loan can save you money is that you are given the loan to be paid back over a fixed period of time. Whatever your terms are, you’ll be able to pay it all back over the agreed upon time frame. The APR is also lower than credit cards, so you end up saving money on interest costs.
One thing people do who are struggling with their credit cards is they will take out a personal loan to pay off all their credit cards and then cancel the credit card accounts. This helps them get out of debt as well. You will likely save a lot of money by using a personal loan simply by paying less in interest, but it will likely also save you money in costs of things you don’t really need.