What Are the Pros and Cons of Personal Loans?

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
What Are Personal Loans and How Do They Work?
Advantages of Personal Loans
Flexibility/Versatility
Can Help Build Credit
Comparatively Low Rates
Relatively High Borrowing Limits
Unsecured Personal Loans May Not Require Collateral
Relatively Easy to Manage When Consolidating Debt
Can Provide Fast Access to Cash
Disadvantages of Personal Loans
Interest Rates Higher Than Some Alternatives
Fees Can Be High
Significant Penalties
Nonsufficient funds (NSF) or returned payment fees Late fees Prepayment penalties
Higher Payments Than Some Alternatives
Can Increase Debt
Sometimes Collateral Is Required
Can Impact Credit Score Negatively
Weighing the Pros and Cons of Personal Loans
Alternatives to Personal Loans
1. Credit Cards
2. Personal Line of Credit
3. Payday Loans
The Takeaway
About the Author
Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and currently serves as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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