For one reason or another, you may have found yourself in dire financial straits. You’ve woken up and smelt the coffee and are now aiming to get your debt repaid and back onto the straight and narrow.
So, at this stage, could personal loans help you get back on track?
Whilst personal loans can seem expensive on paper, there may be some times where they can be a smart route to get out of an existing financial hole.
At Moneystepper, we often talk about debt repayments plans, and our standard answer usually comes down to consolidating your existing high interest debts into one low rate loan. We tend to either talk of 0% Money Transfer Credit Cards, or low rate unsecured loans from the likes of HSBC or Sainsburys Bank which attract rates of under 4% APR.
However, for many people, their financial irresponsibility has put them into a situation where it isn’t possible to obtain these loans due to their credit score. In these situations, a higher interest rate personal loan may still be a good way out.
Higher APR Loans
For many people, the seemingly high APR that may be on offer may be the lowest interest rate loan that they would be eligible for. Whilst this may be high compared to the best products on the market, that is still hugely favourable compared to some of the existing loans/debts that they might have:
|Loan Type||APR %|
|Payment Sharks||Not worth thinking about…|
|Wonga Payday Loan||1,509.0%|
|Quick Cash Club Loan||304.0%|
|My Home Finance||69.5%|
|Aqua Credit Card||35.9%|
|Capital One Credit Card||34.94%|
|Luma Credit Card||35.9%|
|Warehouse Store Card||29.9%|
|Argos Store Card||29.9%|
|New Look Store Card||28.9%|
So, if you currently have these higher APR debts, and want to pay them down more quickly, then a lower rate personal loan may be one alternative to consider in order to accelerate your debt repayment journey.
Horses For Courses…
When deciding whether a loan is right for you, and which one is most suitable, it’s a good idea to consider products that have been specifically designed for your situation.
For example, a common situation arises where students are waiting on their student loan, grant or bursary to arrive in their account, but they have bills or payments to make before it hits their account. A common example is where students need to pay accommodation costs or deposits before term begins.
In this scenario, rather than being charged for going into their overdraft or opting for a generic payday loan, specific lenders such as Smart Pig, who specialise in lending to students, may be a cheaper alternative.
Whilst some of these services can be dangerous or expensive if misused, they can be a much better solution than alternatives that are not specifically designed for the situation you are in.
Whatever loan you are considering, don’t forget that simply taking out a new loan (even if it is to replace existing highest interest debt) doesn’t actually solve the issue. You’ll still need your hard work, and a lot of saving to get those debts repaid and move forward on your financial journey.
Jayson @ Monster Piggy Bank says
Spot on! I wouldn’t take another loan just to pay another my debt. I prefer looking for a side hustle to increase my income. The more income I get, the more I can pay debt. Also, it feels like it’s wrong to pay debt with a loan.
Yes, it is true. As I have experienced with personal loan. Personal loan is a great way to arrange emergency fund, if you are capable of repaying the same in next few months. I have also repaid the loan in 1 year to get rid of this big debt. But if you just want to avail this loan without knowing how you will pay this, then you are in big trouble.
Thanks for sharing a good content here.
I totally agree. Taking a loan to eliminate another isn’t a very good option. This option should only be the very last resort.
These are excellent pointers! When it comes to taking out a loan, it’s really important to understand rates, interest, and credit and how they will affect your financial status for the long run in order to assess if a loan is really the right choice for you. Nicely said! Thanks so much for the helpful info!