Taking personal loans to eliminate other debts can be a tricky situation. However, this is a major decision and one should know all about the personal loans, the advantages and the disadvantages associated with these loans before deciding whether to use them for dissolving other loans or not.
Whether you should take loans for bad credit or not purely depends on the situation, you are facing. In a real bad situation, when you do not have money to carry out your normal day to day transactions and neither have assets which you can put as collaterals, you may be left with very few options to get the necessary cash and to take care of your needs as well as debt repayments.
If you are considering paying your debts using credit cards, consider the fact that you will actually be paying debts, which are carrying less interest rate and replacing them with new debts with higher interest rate. Thus using credit cards could be suicidal in such case. However, if you take a personal loan the interest rates on these are much lower and one can still compare the other loans against the personal loans and see if using them for the debt payoffs looks to be a profitable decision.
Why people choose these personal loans?
Personal loans are meant for the situations where you have an acute financial crunch, do not have assets to pledge for loans, have numerous small and large debt repayments and are left with very little time to meet them.
Obtaining personal loans is an easy process, as borrowers need to complete a simple application form. No need for collaterals for these loans and one can get them directly wired to their active bank accounts or get the checks mailed to their residential address within a day or two at the max.
Why you should not use personal loans to pay off debts?
The personal loans offer lots of benefits like:
- Flexibility to use the funds for any activity you desire
- Easy availability ; within 24 hours in case of online loans
- Less documentation and less processing time
- No collaterals
Nevertheless, they remain another kind of unsecured loans, which attract interest and hence require repayments within a fixed time, which means taking another obligation when your situation is already bad owing to the other debts you are running.
Some of the situations where you should really avoid taking personal loans to repay other debts may be:
- You need to compare the interest loans of the existing loans with the personal loans you intend to take. There has to be a substantial difference in the interest on the loans and take the loans only when your calculations show a good amount of savings in the long run.
- One should remember that most of the personal loans come with no prepayment options and hence one needs to consider the age of the current loan. If an individual has already repaid the loan for some time, has no prepayment charges on closing the current loans and are in a situation where they expect an amount of money coming to them in the near future which can be sufficient to prepay the existing loans, it is better to wait and clear off the loans later than to go in for personal loans.
- The next important thing to be considered is the tenure of the existing loans. If you have made repayments of more than 50% on the current loans and do have the capacity to repay them provided you get some time-off from the lender, it is advisable to talk to your lenders for the loan restructuring rather than closing these loans by taking personal loans . The new loans will have a different amortization schedule and hence you will restart on the interest payments that will result in losses to you.
So carefully assess your situation before committing to any new loans to pay off your existing debts.