Most people all over the world rely on loans to undertake major projects in their life. The credit market has so many loan products and a long list of service providers. In some instances, you may not be sure of which product to buy. The guiding principle should be going for a loan that will give you the highest take home with the lowest interest rates. However, some emergencies may force us to go into loans that we did not desire. The good news is that there is always a remedy as you can consolidate these loans in future. Undesired loans should only be taken as a short-term solution as you look for long term intervention strategies.
Is it Good to Get Personal Loan to Consolidate Your Credit Card Debts:
Getting a personal loan to consolidate the credit card is the best. In this option, you pay a fixed interest rate and the monthly payment amount stay the same throughout the loan term. It is only wise to get a personal loan for consolidating your credit card debt if the interest rate is lower than the interest rate of the credit cards. It is recommended that you visit your local credit union first and see if you can get approved for a personal loan. This is because credit unions often offer low interest rate. Many credit unions would approve you even if you have a low credit score. Personal loans are cheaper and more customer-friendly in comparison to credit cards loan. It’s a wise move to take a personal loan to clear the other small loans that have exorbitant interest rates and penalties. Managing one big loan is easier than having many small loans. It will give you a peace of mind as you will have less things that will be worrying you. The same case also applies when you take a home equity loan to consolidate all the other credit obligations that you have.
The credit union usually charge an interest rate around 4% – 8% with the maximum interest rate capped around 18% per year. If you apply online, you can get a soft inquiry without hurting your credit score. Online personal loans usually give the lowest rate to those who have a good/excellent credit score. The internet rate for online personal loans is capped at around 36%. Some online lenders will help you to distribute the funds to your creditors equally so that you don’t have to submit the payment yourself.
Does the Interest Rate and Penalty Fee Matter?:
Online personal loans typically have a repayment term of 2 – 5 years. If you follow through the repayment schedule, you can pay off the entire loan at the end of the period. If you want, you can pay off the loan early. Many online lenders don’t charge any prepayment fee when you decide to settle the loan early. Although it doesn’t have any prepayment fee, it has origination fee which is around 5% of the loan amount.
Will I need Collaterals to Get an Online Personal Loan:
Online personal loans are unsecured loans that do not tie to any collateral like home or car. You can get the loan from an online personal loans lender or peer to peer lender. Peer to peer lender can look at other factors when deciding whether to approve the loan if you have low credit score.
Home Equity Loans:
On the other hand, home equity loan is a type of loan that allows you to borrow against the equity of your home. For example, if you owe $250,000 on a home that has a value of $400,000 in the market, you will be able to borrow $150,000 from the home equity. Although home equity loan is usually taken out to cover a home improvement project, it can be used to cover any type of expenses including debt consolidation.
All said and done, it’s a wise move to take a personal loan or Home Equity loan to consolidate credit cards. You will save a lot of money in terms of high interest rates and penalty fees that credit card providers charge.