If you are planning a big event, want to take a vacation, or need to purchase a large-ticket item, you may need to borrow money for it. You could use one or more credit cards, or apply for a consumer loan. Here are a few things you should know before making a decision on how to get the financing you need.
Credit Card vs Consumer Loan
You may have some credit cards that are not maxed out and have enough remaining credit to pay what you need. However, unless you are going to be able to pay the credit card balance in the next 30 days, you will end up paying a lot of interest on it. Most consumer loans do not provide an interest-free period. However, they do have lower interest rates. It might be a good idea to get a consumer loan to pay the anticipated expenses of the project and keep your credit cards free foe things that come up unexpected.
Secured vs Unsecured
If you will be using the loan to purchase a tangible item, you can ask for a secured loan. This will generally mean the interest rate is lower. However, if you default on the loan the creditor can come and repossess the item. If you are sure you will not have a problem with the payments, go ahead and use a secured loan whenever possible to keep from having to pay more for the item in the end. Do not hesitate to use an unsecured loan if what you need to money for cannot be repossessed though, just be prepared for a higher interest rate.
There are a few things you need to know about paying back the money you borrowed. First, you should look at the payment amount and period. While you will have lower monthly payments if you have a longer amount of time to pay the loan, you will end up paying a lot more interest. It is a good idea to figure your monthly bills and income and ask for payments that you will be comfortable paying but are not so low you end up paying for many more months. You should try to get a loan with no prepayment penalties. This way, if you have some extra money, you can pay more toward the principle and reduce the total interest you have to pay.
While many people will tell you to avoid going into debt at all costs, sometimes this is just not possible. When you need to borrow money, be smart about it. Look over all your options and make the decision based on what you can pay monthly, and how much you will end up paying over the life of the loan. The idea is to pay as little as possible for going into debt.