Some banks now offer personal loans with rates below 3%. Should I apply?

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In 2020, about 19.4 million Americans had a personal loan, according to LendingTree. This is likely due, in part, to the fact that personal loans can be quite easy and quick to obtain – you may be able to apply, get approved, and receive funds within 24 hours – and their rates are low in this moment. See the lowest rates you can get on a personal loan here.

Indeed, for a certain type of personal loan and for highly qualified applicants, Lightstream has rates below 3%. Even though it’s very low-end, other issuers have rates from around 6%. And that too can save you money: “If you only make minimum payments, $5,000 of credit card debt at 16% could put you in debt for more than 15 years and cost you more than $5,400. $ in interest. Your minimum payment would start at $117. If you get a 5-year personal loan at 6%, you’ll pay about $97 a month and be debt-free in 5 years with a total interest bill of $800,” says Ted Rossman, senior industry analyst. at Bankrate. and His conclusion: “If you can get a lower rate than the alternatives, a personal loan can be a great way to consolidate your credit card debt, medical debt, finance your business, or improve your home. Compare personal loansn rates here.

That said, personal loans are without pitfalls. It’s unsecured debt, so you can pay more interest than you would on, say, a car loan or mortgage, points out Lauren Anastasio, Certified Financial Planner at SoFi — and, of course, the rates you The better you’ll get, the better your credit score and debt-to-income ratio are, she adds. You also need to watch out for origination fees, says Annie Millerbernd, personal loan expert at NerdWallet. These can range from 1% to 6% of the loan amount depending on your credit, or it can be a single flat rate, she explains.

5 things you might want to pay with a personal loan:
  1. To pay off credit card debt
    Rossman says a personal loan can be an attractive way to consolidate credit card debt. “Personal loan rates can be lower than credit card rates, especially if you have good credit, and they offer a fixed repayment period, whereas credit card debt could potentially drag on for decades and build up a debt. ton of interest,” says Rossman. Compare personal loansn rates here.
  2. To repay medical debt
    Some hospitals and doctors offer long repayment periods with little or no interest, which would make these plans better options than personal loans. “But, if you’re paying a higher rate on your medical rate and can’t negotiate it down, a personal loan may be advisable,” Rossman says.
  3. To pay off a big purchase, like a home improvement, you need to do it as soon as possible
    Millerbernd says personal loans work well for home improvement projects you want to get started quickly, like repairing a roof, because you can typically go from applying to financing in a week or less. “You can use a personal loan to remodel a bathroom or kitchen, but HELOCs and home equity loans will likely have lower interest rates, so it might be worth waiting a few extra weeks to see. money in your account,” says Millerbernd. See the best rates for home equity loans and HELOCs here . But personal loans for home repairs also have another advantage, adds Rossman: “You’re supposed to repay the personal loans, of course, but the consequences aren’t as severe as defaulting on a mortgage or debt. a home equity loan or a HELOC.” Compare personal loansn rates here.
  4. Finance a business “Personal loans are often easier to obtain than small business loans. This is especially true if you’re just starting out and don’t have much, if any, business income,” says Rossman. And if you have good credit, personal loans can charge much lower interest rates than business and personal credit cards, which, according to, average 14.22% and 16.4%. respectively.
  1. Private student loan refinancing “Refinancing private student loans with a personal loan might make sense, but I wouldn’t recommend it for federal student loans because they have more generous forbearance and forgiveness policies,” Rossman says. To understand this, you just need to look at the rate you pay on your private loans versus the rate you can get on your personal loan, as well as the origination fees, application fees (if there is one ) and all the protections and benefits that come with the student loan. Compare personal loansn rates here.
3 things why you should not take out a personal loan:
  1. Purchases that have better loan options, such as school or buying a car or real estate
    Anastasio says personal loans should be avoided to finance purchases for which there are more suitable borrowing options. “Examples include financing school or education expenses with a personal loan instead of a student loan, buying a vehicle when a car loan would be available, or for real estate when a mortgage would be the most appropriate choice,” Anastasio explains.
  2. Discretionary purchases like holidays or retail splurges
    Personal loans represent too big a commitment, and an expensive one at that, for discretionary short-term purchases. “Avoid personal loans for frivolous expenses you can’t afford. You may really, really want that beach vacation, and you may be able to find a lender to give you some money, but that doesn’t mean getting a personal loan is a good idea,” says Matt Schulz. , chief credit analyst at LendingTree.
  1. A marriage
    Just like vacations and big bucks, Millerbernd says, “A personal loan may have a lower interest rate than your credit card, but it’s one of those times when it pays to adjust your budget. or delay in order to be able to pay in cash.” Also see: 8 things to consider before refinancing your mortgage

About Judith J. George

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