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PROS AND CONS OF TAKING OUT A LOAN

There are many reasons why someone may wish to apply for a loan. Whether it be to pay for a holiday, a new car, a mortgage or simply to pay the bills that month. However what many people are unsure about is which type of loan they actually need. 

PROS AND CONS OF TAKING OUT A LOAN

Here are some pros and cons of personal and payday loans and why you should look into personal loans over a payday loan if you don't want to be tied under and forever taking out another payday loan each month. 

Personal Loan

A personal loan is money you borrow to pay for something you may need and that you couldn't otherwise save up for immediately, for example a car, wedding or mortgage. Taking out a personal loan is the most sensible option and here's why:

Pros
  • Spread out affordable payments
  • Choice of repayment terms 
  • Pay a lower interest rate 
  • Helps build your credit rating 
  • Only having one payment instead of multiple credit cards etc
  • Minimal documentation - most can be done online through your bank
Cons
  • You could end up with higher monthly payments
  • You need a decent credit rating to be approved
  • No part payments - most lenders require you to stick to the monthly payments
  • Some lenders charge high interest rates 

Payday Loan

Of course no one wants to be in the situation where you have to take out a payday loan to pay the bills and have dinner on the table but needs must and sometimes a payday loan is the only option available if you're unable to apply for a personal loan. 

Pros
  • Convenient, easy to apply
  • Quick cash
  • Some pay the same or next again day
  • Available to people with low credit rating
Cons
  • Expensive
  • Available to people with low credit rating
  • Some Payday loans are dishonest and can result in you being ripped off
  • Take too long to pay off
  • Interest rates are very high
  • Lenders can get access to your bank details making it hard to cancel payments
  • Only available for a short period

Have you ever taken out a loan? Do you have any advice to share based on your experience?

* In collaboration with TSB. For details on how I work with brands take a look at my work with me page.

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27 comments

  1. I bought my car on repayment and it definitely made it so much easier to pay for and to get a car I wanted brand new. The balloon payment at the end was a bit scary but even though ultimately you pay more over the course it's a much easier way of paying. And like you said it helps with credit rating which helped with mortgages ;) x

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  2. This is a really insightful post! Have you noticed there is this weird almost stigma around taking out a loan? I bet many people wouldn't write this post.

    Catstello | www.cattitudeandco.uk

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  3. I wouldn't ever advise anyone to get a payday loan but I think standard personal loans are a great finance option for many people x

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  4. I've never taken out a loan but it is something I have considered in the past! This is a great post , really insightful.

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  5. I have to admit loans are one thing I haven't taken out - there is definitely some plus sides to it though. x

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  6. Never have a pay day loan! Ever! I used to be a customer advisor for a high street bank. The customers that had them always ended up worse off. However, Repayment loans can often be cheaper then credit cards. We have one now after consolidating. The monthly payment is cheaper then all the minimum payments and we have an end date in sight!

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  7. A very informative post, the interest rates on the payday loans is shocking I think I'd advise people to head to the bank!

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  8. A very detailed post, with easy to understand explanations. Thank you! I had a loan many years ago for my first car. It wasn't a large one but felt like it at the time. How horrendous are the interest rates on some of these loans!

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  9. I was an idiot when i turned 18 up until around 21. Thouggt credit cards were free cash to splash. So i wouldn't take a loan out now, don't think anyone would have me! X

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  10. Aah, this is really helpful! I'm still only a young 'un and know I'll need a loan eventually, but I've never really understood them. Until now of course, thanks a mill!
    www.ibelieveinromeo.blogspot.ie

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  11. I had a few loans when I was younger (to set me up with furniture for the house when I was pregnant with Stacey) and I would always say go for an unsecured personal loan. This was the advice I was given and it definitely makes sense because if you end up out of work and can't keep up the repayments they can't take your house or car etc.

    Great post :)

    Louise x

    With love from Lou

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  12. Lots of good points here, and very detailed information. It's definitely important to consider the type of loan with its pros & cons before going forward. x

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  13. I think the scary thing these days is how readily available credit is to people. I watch so many programs about people in debt way over their heads. People need to do their research and defo make sure they chose the right route before making the commitment xx

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  14. It's impossible to live these days without having a loan of some sort. Learning how to manage money, which loans are good and which should be avoided are life skills that should be taught in schools. Learning by getting it wrong in real life is a hard lesson to recover from.

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  15. i've always wondered how payday loans get away with charging so much interest. x

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  16. I'm banned from taking out a loan (husband he say 'no!') so I just have to watch my pennies. Good advice though!

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  17. any car I ever had was paid by taking out a loan, I am a bit more scared now with mortage, more bills and kids to consider a loan

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  18. The cost of living is so great now that O do worry for people living like this from loan to loan.

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  19. When I was in Univeristy I lived on pay day loan after pay day loan and trust me that is not something I wish on anybody and will never do. I did take out a loan and now that have paid it back never again

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  20. This is such great advice and it is very refreshing to find a blog that talks about money topics like loans! You have some really great advice here!
    Love Sian | The Tattooed Princess ♥

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  21. I took out a personal loan years and years ago when I found myself about to become homeless two weeks before Christmas. It was for £1000 so I could put down a deposit on a flat and It saved me. I would never get a payday loan, I don't see how they can help and find them all a bit of a con. You have to pay back so much interest.

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  22. It's a great post for me, because English is my second language, and sometimes I misunderstood, and this can have serious consequences
    thanks

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  23. For the last 12 years we have one personal loan which is just getting paid off and renew every time we need some extra cash (usually every 2-3 years). I wish we didn't have any loans but I guess one isn't so bad.

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  24. I'm lucky that I'm secure financially, some of the APRs are ridiculous! Personal loans are certainly better in my opinion xx

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  25. I've fallen victim to payday loans in the past and I find its a difficult situation to get out of, although they are handy at the time, you have to be so very disciplined with them. Personal loans are all I'd consider in future and even though only for something extremely important. xxx

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  27. I got a car out on finance when I was younger. Would never get a pay day loan as rip-offs

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