Personal loans are much sought after in that they can help manage your debt payments through consolidation, meet more considerable expenses, and do up your credit score. One of the significant advantages of these loans is that you can borrow a more substantial sum that you will pay down over a period of time.
Personal loans are not too complicated to get the nod for even if you take them out with a bad credit rating, but the fact is that these loans can throw you into a deeper hole of debt. A personal loan is not a joke. Borrowing is recommended only when your savings have fallen short, and you cannot put it on the back burner.
If you keep taking out a loan, you will end up owing more than your affordability, and in the end, you will be up to your neck in debt. It does not matter why you are taking out personal loans in Ireland, but you should carefully weigh up the upsides and downsides.
Although these loans are advertised as a medium for giving your credit report a facelift, do not forget that they are subject to some risks as well. Here are the risks linked to personal loans in Ireland:
1. High-interest rates
Personal loans can be expensive. Even if you are applying for them with a good credit rating, the interest rates will be high. This is because they are not secured against any collateral. If you make a default, your lender does not have any right to take your assets into custody to liquidate them to get their money back.
Though they have other ways to recover money from them, they involve a lot of formalities and are time-consuming as well. As they involve a high risk on the part of a lender, interest rates will be pretty high. They will be even higher if you take out a bad credit personal loan.
2. Early repayment penalties
Personal loans are expensive because of fees, too. If you are past the due date, you will have to pay late payment fees, and interest will be accrued on the outstanding amount. Likewise, if you repay a portion of the debt before the due date, you will be charged early repayment fees.
Not all lenders charge this kind of fee, but some do so in order to make up for the loss of interest due to early settlement. Early settlement is usually recommended when it helps save some money in interest despite prepayment penalties.
The details related to early repayment charges are disclosed in the contract. Make sure you read it before signing it. It will most probably be written in fine print. You can also directly ask your lender about this fee. Try to take out these loans from a lender who does not charge prepayment penalties.
3. Origination fees
Most of the lenders do not reveal that they charge origination fees, but they do. It is usually part of processing fees. When these fees are added, the APR increases. You should beware of the origination fees. Try to clearly ask about it when you apply for a personal loan.
Do not forget to get information in your loan agreement. The bifurcation of the costs might be given there. While some lenders may not charge origination fees, they will charge relatively higher interest rates.
4. Risk of falling into debt
If you are using a personal loan to consolidate your debt, you will likely end up with a very high amount of debt. First off, consolidation loans are signed off n only when you have a good credit rating. Interest rates will be very high if any lender gives you the nod for these loans despite a bad credit rating.
The repayment length of consolidation loans is not too long, meaning the size of monthly installments will be large. This can put a burden on your budget. You may find it challenging to keep up with payments of debts along with other recurring expenses.
If you fall behind on payments, you will have to roll it over. This will continue to add up the amount of debt. You will be caught up with the debt if you fail to address your financial situation.
5. Damage to your credit score
When you apply for a personal loan, your lender will run hard inquiries. As a result, you will lose your credit points temporarily. However, you can bounce back after making a few installments on time. As there is no guarantee that a lender will undoubtedly give the green light to your application, you should get a pre-qualifying letter.
This will help you understand whether you have a chance to qualify for a loan from a lender and the estimated interest rates you will be charged. With the help of a pre-qualifying letter, you can compare interest rates and save yourself from applying to many lenders.
This rule is not applicable to loans for bad credit with instant approval in Ireland. Suppose you are borrowing a small personal loan to fund unforeseen expenses. In that case, you do not have to worry about losing your credit points because a lender will run only soft credit inquiries that do not show up on your credit file.
The lending decision is made based on your current income sources. These loans are processed too fast. However, the interest rates will be quite high. Payday loans, text loans, and doorstep loans are a type of personal loans.
To wrap up
Personal loans in Ireland may have some benefits like they allow you to borrow a more considerable sum, help improve your credit score, and the like, but they are also associated with risks. While using these loans, you should carefully understand your needs and the impact of them on your budget. This is the only way to prevent yourself from falling into debt.
Caleb works as a senior content writer at Financealoan for the past 3 years. He is a writing enthusiast and invests a good time in exploring and writing about financial trends. His keenness in exploring a topic to create a research-based piece is simply unmatched. He believes in including a texture of authenticity with real-time examples and facts.
Caleb’s blogs and articles reveal deep-seated knowledge and expertise. His educational qualification forms the base of his excellent command over the industry and Jargon. He is a postgraduate in Finance and is currently involved in exploring the world of the stock market.
