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3 reasons why you should provide a personal loan this year

By on September 20, 2022 0

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This may not be the perfect time to borrow.


Key points

  • A personal loan offers you great flexibility as a borrower.
  • While interest rates on personal loans are often competitive, you can now choose a different route – or avoid borrowing altogether.

There is a reason why so many borrowers are attracted to personal loans. A personal loan allows you to borrow money for any purpose, so unless you want to be limited in how you use the loan proceeds, this is a good bet.

In addition, you can get a relatively affordable personal loan rate. This is especially true for people with large credit.

But while personal loans certainly have their advantages, now may not be the perfect time to take them out. Here are some reasons why you should deny a personal loan in the second half of 2022.

Discover: These personal loans are the best for debt consolidation

More: Pre-qualification for a personal loan without affecting your creditworthiness

1. The interest rate on loans is higher

Typically, you will get a much lower interest rate on the amount you borrow on a personal loan than on a credit card. That said, the Federal Reserve is aggressively raising interest rates in an effort to slow down the pace of inflation. Consequently, the interest you receive today on a personal loan may be much higher than what you would have received at this time of last year.

The tricky thing now is that we don’t know if loans will be more expensive or cheaper next year. There is reason to believe that the former could happen as rate hikes continue. But if inflation starts to decline nicely, the Fed may stem interest rate hikes and interest rates on loans may fall in 2023.

At this point, waiting to borrow money is a bit risky. But we know that interest rates on personal loans are now higher than they used to be, so keep that in mind.

2. You don’t have to borrow that much

One great thing about personal loans is that they tend to close quickly. But that doesn’t mean there is no work involved in getting it into place. Hence, personal loan lenders tend to impose a minimum loan requirement to make this effort worthwhile. So, unless you have to borrow a lot of money, a personal loan may not make sense.

Imagine you need $ 600. You may find it difficult to get approval for a personal loan less than $ 2,000. In that case, it’s worth exploring other borrowing options.

3. You have a cheaper choice

A personal loan can be a very affordable loan option compared to the other options that are presented. But if you are a homeowner, it may be better if you take out a home equity loan if your goal is to get the lowest interest rate possible.

Like personal loans, a home loan allows you to use the proceeds of the loan for any purpose. It’s a big misconception that your income must go to renovate or repair your home (although many borrowers do, in fact, use home equity loans for this purpose). So you can get the same flexibility with an even lower interest rate.

Taking out a personal loan can be a good option when you need to borrow money. But at the moment, you may want to go a different route or, if possible, hold off borrowing altogether until interest rates start to decline.

The Ascent’s best personal loans for 2022

Our team of independent experts has studied the fine print to find selected personal loans that offer competitive rates and low fees. Start by looking at The Ascent’s best personal loans for 2022.