In that case, a personal loan might be for you. A personal loan is a sum of money extended by a bank or financial services provider, which you can use for just about any purpose. You choose how much you want to borrow, then pay it back in installments, usually on a monthly basis, with interest. Some personal loans let you choose how much time you want to repay the loan, whether that’s six months, a year, or several years.

Personal loans are typically cheaper than payday loans, and they can often have lower interest rates than credit cards. And because you borrow the money for a specified period of time, you can develop a financial plan to make sure your personal loan gets paid off. 

Here’s what you should look for (and what you should avoid) when you take out a personal loan. 

Consolidate debt, repair your home, meet expenses

Personal loans can be helpful if you need money unexpectedly. You can use a personal loan to cover costs if you suddenly need to fix your roof, or if you need a new dishwasher or washing machine. Or you might take one out if you suddenly find yourself furloughed or laid off, and you need the cash to meet expenses.

You can also use personal loans to consolidate debt. For example, if you have high-interest debt on multiple credit cards, you could consolidate them into one loan with one interest rate. 

When you take out a personal loan, a bank or financial institution lends you money for a specific period of time. Like credit cards, personal loans are typically unsecured, meaning you don’t need to put up collateral for them. (That is different from a mortgage or an auto loan, which are secured by your house and your car.). 

You might choose a loan over using your credit or taking out a cash advance from your line of credit, because it’s typically much cheaper. The average interest rate for a 24-month personal loan is 9.63%, while it can be more than twice that for a cash advance.

Consider APRs and fees

Keep an eye out for the annual percentage rate (APR), or interest rate, of the personal loan before you take one out. You’ll pay back the personal loan with interest, and the interest rate tells you the rate at which the interest accrues. The APR takes into consideration the interest you pay on your loans, as well as any annual fees that you’ll have to pay on the loan for the term of repayment.

But the interest rate of a personal loan can range from 3% to 36%, depending on your credit score. If you receive an offer for a loan with a high interest, it may be wise to check out a platform where you can see multiple loan options and providers in one place.

Also remember that personal loans will charge an origination fee, a one-time charge that is typically around 1% of the total amount you borrow. You will owe that on top of the amount you borrow, plus interest charges.

Before you take out a personal loan, take a step back and look at your entire financial picture. Go through your monthly budget—which should account for expenses, savings for the short- and long-term, and investing—and make sure you’ll be able to handle monthly loan payments. If you can manage the payments and a personal loan would help you financially, you might consider one.

If something seems off, it may be!

Not all lenders are predatory, but some can be. Predatory lenders might not fully disclose the costs and fees associated with the loan, or charge consumers higher interest rates if they’re likely to default on payments. Make sure you read all the fine print and shop around to make sure you’re getting a fair interest rate based on your credit history.

Stash and our LendingTree Partnership

As with all loans, weigh the pros and cons before taking out a personal loan. Sometimes life happens, and you need money to make ends meet. Personal loans might be a more cost-effective way for you to borrow money than credit cards or payday loans.

That’s why Stash has partnered with LendingTree¹. LendingTree can help you find out if you qualify for a personal loan online, within minutes. The LendingTree platform also helps you search and compare different personal loan offers, including rates and fees, so you can choose the product that may be right for you. 

Whether you need $1,000 or $50,000, LendingTree can help. You can get more information about personal loans from LendingTree here. 

The post Why Personal Loans Might be for You appeared first on Stash Learn.

Hold on. Take a deep breath. And before you make any decisions, read the rest of this column. As someone who has taken out a personal loan and paid incredibly high interest, I’d like to help you avoid my own mistakes.

When we use the term “personal loan,” we mean it’s a loan from a bank, credit union, or financial technology company that you pay back in monthly installments over a period of years. 

Personal loans defined

That  loan isn’t tied to anything other than your need for money. It’s not an auto loan. It’s not a home mortgage. It’s not a payment plan on your fancy spin bike. It’s money sent straight to you with plenty of strings attached—including fees and a fixed monthly payment that you’d better make, and a steep annual percentage rate (APR) that will ensure the bank makes a profit off this exchange.

It’s dangerous to imagine the answer for debt is, well, more debt. And the sudden abundance of personal loans is disturbing. In fact, personal loan balances swelled to $156 billion in 2019, and the number of loans taken out surged to 23 million, from 16 million in 2016, according to this 2019 article from Forbes.

But beyond the idea that you ought not to rack up too much debt, there are other unsavory elements to this booming personal loan business. The APRs on personal loans tend to be higher than you might expect, ranging from 6% to a staggering 36%. 

And if you think you need to take out a personal loan, chances are you’ve experienced some money troubles that may have impacted your credit score already. The lower your credit score, or the more credit card debt that you already carry, the higher the likelihood that you’ll only get a personal loan if you agree to an astronomical APR and/or high fees. I once got one for…drumroll please…22.99%.

Yeah. I know. Don’t be like me, at least in that regard.

Here’s a list of reasons why you should do your best to avoid an unsecured personal loan.

You won’t have a tangible piece of collateral

Okay, you know how your auto loan is secured with collateral – your vehicle? Right. You know that if you don’t make your payments, eventually your auto loan company might send somebody to take your car away. That can be a pretty powerful incentive to keep up your payments–or, at the very least, to pick up the phone and negotiate with a representative from said company if you run into financial trouble.

But an unsecured personal loan means you have no physical thing in front of you to remind you to use your funds wisely. Sure, maybe you take it out to pay down some credit card debt…but hey, wait, what’s that shiny new piece of exercise equipment online? Maybe you need an online meditation or educational subscription to some fancy website that overcharges for stuff you could get for free. Or maybe you need to buy gifts for your family – not just necessities, but little things to make them smile. That’s cool, right?

Sure – in theory. But that credit card debt ain’t going anywhere, and neither is your new personal loan debt. And your stress level is about to rise exponentially—like your total debt. 

An unsecured loan may worsen your spending habits

If you’re somebody with addictive tendencies, you know that there will never be enough booze, chocolate, sex, gambling apps, or other outlets to satisfy your particular craving. 

I am one of you, so I’m speaking from experience. I’ve been in Get Your Money Together school for some time now. I want you to learn from my mistakes. Taking out an unsecured personal loan may feel like a free pass. Take a deep breath, take a walk, and talk to a smart friend or two about this before taking the plunge.

Lenders are not your friend

They’re not. They’re counting on you sticking around forever and ever and ever. After all, that’s how they make their money. By taking out the loan, you’re helping an entity that absolutely does not have your best interests at heart. You’ve got to weigh the pros and cons sincerely before you do it.

You may be ignoring folks who’d be glad to help

Now, it’s generally best to not do business with family and friends. But there are major exceptions. If you can work out a deal in writing with a family member or friend, why not discuss the terms of an interest-free loan? Perhaps you can make payments on a schedule that suits both of you. Or you may be able to help in a different way. Do you have particular skills you could teach a friend’s kid over Skype, FaceTime, Zoom or Google Hangout? Can you take care of some landscaping or errands for a pal?

It’s a rough time for many of us financially, but we will get through it. Please avail yourself of stress relief resources, including free online yoga and meditation. (Try Yoga with Adriene.) Check out low-cost and no-cost mental health care providers, or call someone who’s been recommended to you and ask if they’ll work with you on a sliding scale. Of course, everyone’s situation is different, and you need to carefully consider what works best for you.

I know that won’t put money in your pocket, but it may help you pause and lower your fight or flight response before you get into a bad financial deal. I wish I had done the same!

The post How to Avoid the Personal Loan Trap appeared first on Stash Learn.

One reason is that personal finance isn’t taught in schools, and as a result, only 16 percent of millennials qualify as “financially literate,” according to a new study by the Teachers Insurance and Annuity Association of America. And a new poll found that only two percent of American adults could get at least five out of six questions correct on a simple personal finance quiz. The survey found that most people had little knowledge about credit and interest. 

With this in mind, it makes sense that the average American now carries a record personal debt of $38,000, according to a Northwestern Mutual study. What’s more, the same study shows 87 percent of Americans say nothing makes them happier or more confident than feeling on top of their finances. 

So how does such massive debt happen? 

Here are six common pitfalls and traps that land Americans in financial trouble:

1. Buying too much house. “People want to be house rich, but end up cash poor,” says Jack Choros, chief marketing officer of Gold IRA Guide, an online retirement planning magazine. “If you can’t put down 20 percent and keep three to four months’ worth of salary in the bank to account for an emergency, your house is too expensive.” Freddie Mac, the Federal Home Loan Mortgage Corporation, has an online calculator to show you what your maximum loan and payments should be based on your down payment and salary. For example, if you have an annual salary of $60K and have $50K saved, you could potentially afford a home up to $244K, with a monthly payment of $1,400. 

2. Auto loans that wind up costing more than you expected: Choros’ rule of thumb applies to cars, too. You should be able to put down 20 percent of your car. Unfortunately, more Americans are buying more expensive cars than they can afford.  A third of car loans now last for more than six years, according to a recent Wall Street Journal article. Ten years ago, that number was under ten percent. Remember also that cars aren’t great investments. They’re value decreases by 10 percent when you drive it off the lot, 20 percent in 12 months, and 10 percent every year thereafter, according to CarFax. Ideally, you’d be able to pay cash for the entire car, but when that’s not possible, put as much down up front as possible and opt for the shortest loan that’s manageable for you. Choosing a long, 72-month loan over a 60-month loan would cost you hundreds of extra dollars in interest.

3. Carrying credit card debt. The average American has more than $6,000 in credit card debt, according to a 2019 Experian study. This is up three percent from 2018, and can be particularly dangerous because credit cards tend to have very high interest rates. Get serious about debt pay off with methods like the avalanche and snowball.

4. Payday loans. About 2.5 million U.S. consumers take out payday loans each year, according to the credit bureau Experian. These are very high-interest loans–we’re talking up to 400% annual percentage rate (APR)–that are paid back with your next paycheck approximately two weeks after you receive the money.  Part of the appeal for consumers is that they’re reportedly easy to get with relatively little by way of a credit check performed by lenders. On top of the high APR, there are also steep processing and origination fees associated with the loans that can push the total APR up to 800%, according to the Consumer Federation of America. Many consumers wind up rolling over loans from one pay period to the next,  winding up in a chronic state of indebtedness.

5. Student loans. Student loans are inevitable for so many Americans, and unfortunately there are several ways these loans can trap people.

• Many loans come with a fee. The problem? That fee isn’t discussed at the time of the loan application. Instead, it hits when the loan is transferred. University of Wisconsin alum Chris Mansavage, whom I interviewed,  took out student loans in 2012, but wasn’t informed that his loans had a $700 fee that he wasn’t prepared for. Asking about fees is key.
• Your loan may get sold or transferred without your knowledge. If you visit your loan website and see that your balance has mysteriously gone from the thousands to zero, do not simply count this as an act of God. Call your lender. They probably sold your debt to someone else and you haven’t received a notice yet.
• Your loans may not be fixed. In an interview, Lehigh University alum Chris Castelli says he called Sallie Mae after graduation to consolidate his four loans, all of which he had at 2 percent interest. “They advised me not to consolidate, because I already had a good interest rate,” he says. “I was not informed that my interest rate was variable. I fell for it. Soon after, they raised my interest rate above 5 percent. That cost me a ton of extra money over the next decade.”

6. Timeshares. The problem with signing up for and paying for a vacation rental up-front for many years is that you have no leverage if the place turns out to stink, falls into disrepair, or your perfect island getaway is hit by a hurricane and the entire beach disappears. Plus, it’s impossible to sell most timeshares — they’re yours forever. And when you die, they become your heirs’. Perhaps this is why a University of Central Florida study shows 85 percent of people regret buying into a timeshare. A 2018 United States Shared Vacation Ownership Consolidate Owners Report showed 7.1 percent of Americans own at least one week of timeshare of year, and that the industry is growing. The average cost per timeshare is more than $22K with an $980 maintenance fee, according to The American Resort Development Association. 

Obviously, borrowing money and making big purchases can’t be 100 percent avoided. But by reading the fine print, asking questions, comparing your options, and staying within your budget, you can avoid these common financial traps. 

The post Six Common Financial Traps and How to Avoid Them appeared first on Stash Learn.