Is Taking Out a Personal Loan While in Your 20s a Wise Move?
The 20 to 29 age bracket is the most productive you’ll ever be in your lifetime. There are little-to-no life stresses and you’re in perfect health. Many young people within this age bracket resolve to making merry, which is the most common thing to do.
However, during this period, chances are you may end up in a cash crunch and a personal loan may save the day. These loans don’t require you fill out a ton of paperwork, and the best part is the short time to funds disbursement. If you satisfy the lender’s requirements, you may receive the funds the next business day.
Nevertheless, before you can make an application for a personal loan with services like nation21loans.com , while still in your 20s, there are several advantages and disadvantages to consider. Read on to find out what they are.
Advantage: You Can Invest the Money or Cover Various Expenses
A personal loan can come in handy when trying to bridge a financial gap. While there may not be a ton of expenses to worry about at your age, you can solve the following issues using a personal loan:
- Advancing your education: You may have won a scholarship to cover your tuition fees, but you still need money to cater to various personal expenses while at school. These include renting an apartment or even buying study material. In addition, after graduation, you can use the money to pay for short courses, which can improve your skills and leverage them for a promotion at work.
- Relocating: You applied for a job, passed the interview, and now the employer has offered you a job. The problem is the position is in a company far away from your hometown. This means you’ll have to relocate in order to start your job. However, you don’t have the money to cover moving costs. Borrowing some money to help you move is a smart move. Besides, your new salary will help pay it off.
- Opening a Small business: As a young person in your 20s, chances are you have multiple business ideas you’d like to pursue. Starting a business is difficult due to financial constraints. However, taking out a personal loan offers you a cheap way of actualizing your dream of owning a business.
Disadvantage: You May Misuse the Loan
The best part about a personal loan is that there are few restrictions imposed by lenders. This means you can use the funds on almost anything. With this in mind, it’s easy to see why one would be tempted into misusing the money.
There are four expenses you may want to seek alternative funding for. They are:
- Huge purchases – It could be a home theater system, a car, or a vacation. Taking out a personal loan to cover such expenses is the wrong move because you’ll probably end up paying the sticker price or the first price for the item since you have enough money. Add the interest rate to the loan and this means you’ll pay way more than what the item is worth.
- Wedding – The estimated median age for marriage in America stands in the late 20s. You’re in your 20s, as well, thinking about a similar move. If so, you want to seek alternative funding to cover the wedding costs besides a loan, or better yet. thin your guest list.
- Vacation – Take the entire cost of your vacation and add the interest you’ll pay once you return from the vacation. The figure will shock you. which is why setting up a savings goal or crafting a budget, not using a loan, is the best way to pay for your vacation.
- Daily bills – At first thought, borrowing money to take care of basic necessities seems like the perfect idea. However, a deep analysis reveals this is only a temporary solution. Finding the main reason why you ended up in debt in the first place is the wiser move.
Advantage: Consolidate Your Debts
Taking out a loan to pay off another one. Seems absurd, don’t you think? Well, many people use this strategy since personal loans carry low-interest rates compared to credit cards. Let’s use a real-life example:
For instance, if you have a credit card debt amounting to $15,000, you’ll save a whopping $11,138 if you consolidate the debt using a personal loan offering 10% APR instead of making minimum payments at 15% offered by the card issuer.
While you still have to clear the $15,000 loan, the good side is your credit card balance will go back to zero afterward. In addition, you’ll benefit from additional perks associated with personal loans:
- You’ll pay reduced interest on the loan.
- You only have a single payment to worry about instead of multiple payments to various card companies.
- Personal loans have a fixed repayment duration and are repaid through monthly installments unlike the revolving nature of credit card debt.
Disadvantage: You May Have High-Interest Rates
Similar to other installment loans, personal loans come with a catch. In order to qualify for a loan with a low-interest rate, you must have at least good credit, not to mention a good debt-to-income ratio.
If the lender doesn’t see any of these, you’ll end up with sky-high interest rates—up to 35% and these are rates from the best lenders. However, there are predatory lenders lurking in the marketplace offering even higher interest rates and short repayment durations, which makes it almost impossible to repay.
With this in mind, the best move would be to improve your credit score in order to place yourself in the best possible position. This will allow you to prequalify for a loan and afterward take full advantage of the personal loan.
Personal loans offer a great way of resolving various financial problems. However, it’s important to consider your financial position in order to make a sound decision about the loan’s affordability.
The pros and cons listed in this article should help you gauge whether taking out a personal loan while in your 20’s is the best move.