The Top 10 Personal Loan Tips from Reddit You Should Know about

If you’re considering taking out a personal loan, hearing about what others went through can be helpful as you navigate the process. Here are the top 10 tips from Reddit about personal loans.

In this exchange, a user explains why people may recommend a personal loan. Being mindful of what your rates are between a credit card and a loan is important in order to have the best payoff potential.

Original post: “Everyone tells me to take out a personal loan & pull all of my credit card payments into one payment. But the rates on these loans are just as bad as my credit cards! Some of them are worse! Looking around today, I saw rates as high as 35%. My credit union offers personal loans for credit card debt, but even their rates are 24%- that's worse than my Capital One. I can't believe that. Yet people still swear by them. Is there some trick I don't know about? How does this work for people??...still, those are outrageous rates for personal loans. They’re typically anywhere between ~3-10% which is why people prefer them over the 17-35% credit card rate”

Comment: “The higher your credit score, the lower the risk = lower interest rates…If your credit is awful, you get those types of rates. For me, it's only marginally better to get a personal loan instead of just rolling with the credit card rates. You need years of good credit to get those good loans”

Like with any loan, depending on your credit, you might need a cosigner. Because there is no physical asset like a car or a home, a personal loan may be more difficult to secure. One user shares their experience here.

“I also tried to consolidate my credit cards onto a low-interest personal loan. I found out that they don't give those to people who are in dire need of it. They will only give you give them our if someone cosigns or if you can prove that you can repay it."

If you’re only trying to reduce your credit card debt, taking a personal loan may not be worth the effort according to this user.

“If you only make the the minimum payment on the credit card each month, you’ll never get it paid off. Loans have a set term, regardless of interest rate, they should be paid off as fast as possible.

With that said, you should just pay extra on the credit card each month to get the same result.”

According to this Reddit post, an alternative that may be beneficial is a balance transfer.

“You could look into a balance transfer. Sometimes those are lower rates to bring your existing balance over to a new credit card. Some places charge to do the transfer, and some don’t.

I don’t know where you’re looking but if it’s a figure like 35%, that's pretty high. I haven’t even seen a CC with rates that crazy!"

If you own your home with a mortgage (or mortgage paid off) you could do a refi on your home or a home equity line of credit which is basically a giant credit card with your house as collateral.”

Rates change depending on the bank or credit union. This user recommends checking around to make sure you get the best rate.

“I don’t know what credit unions you are looking at, but definitely shop around for different ones. They tend to have the most favorable rates. The one you mentioned doesn’t sound like a personal loan.”

Having a predetermined payoff timeline may help you save money on lengthy interest rates over time. This user explains below.

“It can help in two ways, paying off your revolving debt is likely to raise your credit score. Unless you have a bunch of collections or something, if you wait for a little while, you're likely to qualify for a lower interest loan that you can refinance the high-interest loan with.
Also a personal loan forces you to pay off the loan on a fixed timetable. With credit card debt technically you never have to pay it off. As soon as you make your minimum you can spend it again. So conceivably, you could certainly end up paying much less in the long run with a personal loan, even if the interest rate is higher.

But it's up to you. Either way, to clear the debt you have to pay what's owed. The better choice just depends on what your willpower looks like. If you're just going to run up the credit cards again, definitely don't get a loan. Oh also if you do the loan, don't close the credit card accounts either.”

Like with any credit, making on-time payments is crucial. This user offers advice to make sure you are mindful of the payment schedule.

“You have to be very careful with personal loans. They are great if you actually stay disciplined and pay off the debt, but many people end up charging up even more and end up even worse off than they were originally.”

As in the recommendations above, there are other options instead of a personal loan now. This comment explains that some larger banks do not even offer personal loans anymore.

“Personal loans are very hard to get these days. Places like Wells Fargo stopped offering them altogether. You didn't say how much your debt is, but you might get a small one of $2,000 or less from a credit union which is probably the only place that isn't going to rip you off. Basically, the people that get personal loans at reasonable rates are people that have such stellar credit and jobs you wonder why they'd need them. Be careful. I've seen a lot of people here who got a personal loan and ten years later wonder why they haven't made a dent in it. The financing, terms, and fees can be tricky.
If your credit is good, I'd apply for a zero percent card and transfer what balance you can over.”

This user explains how he was able to pay off his personal loan early with no penalty. Understanding the terms is important when deciding where to take out a personal loan.

“I have recently done this myself. I have found the interest rates to be about a third of my credit card interests and have calculated how much I will save. It is significant. The best one I could find is a Discover Personal Loan- they have good rates and allow you to pay it off early with no penalty. Two things to take into consideration: Can you afford the minimum payment every month? It will likely be more monthly than your card minimums. And, make sure you don’t use the cards anymore! I was dumb enough to do this and had to get a second personal loan and do it all over again. Cut up your cards, maybe keep one for emergencies, and put it away, not in your wallet. Good luck!”

Overall, being aware of your financial situation is crucial before taking out any loan. This comment sums it up.

“A loan is a loan. Lower interest or payments may help. Just do the math. The real headache is not going further into debt because you have open credit cards. Many people fall into the trap of more and more debt. They don’t understand how bad debt can haunt you for years. So, get the loan but change the spending habits that got you there.”


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