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Personal Loans: Should You Get One?

[Jul 14, 2009.]

 

Being able to qualify for a personal loan doesn't necessarily mean a borrower should apply for one. Even people who have good credit and a steady income should take time to evaluate  whether or not they can really handle monthly payments for a personal loan.  Here are some things borrowers should consider before using personal loans to avoid taking on too much debt.


  1. Few people are totally immune to downturns in the economy. Just ask the folks who invested their life savings with convicted Ponzi schemer Bernie Madoff. People who have money invested in stocks  or other risky investments are susceptible to swings in the financial markets. Also, more U.S. consumers are falling behind on personal loan and other debt payments due to rising unemployment.

  2. Current debt payments for non-mortgage costs should be no more than 20% of a borrower's gross monthly income. That includes payments for credit cards and auto loans. These days any loan applicant who is carrying more debt than that will face tough scrutiny from lenders.

  3. Mortgage-related debt should ideally be no more than 28% of a borrower's gross monthly income. Mortgage payments include property insurance and taxes.

  4. People who rely on cash advances from one source of credit to pay another may already be in over their heads. At this point taking on a personal loan could cripple their finances.

  5. Borrowers who need to get their hands on cash should consider whether they have other sources of money they can tap, such as a savings fund or existing home equity line of credit.


It's important for borrowers to think about their reasons for wanting to obtain a loan. If they can get by without taking on new debt they should. However, people who really feel they need the help of a loan can search for a lender here.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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