Money Management

Personal loans are a helpful tool. But read on to see when taking one out is a poor choice. 

There’s a reason personal loans tend to be popular with consumers. A personal loan allows you to borrow money for any purpose.

Need to fix up your car? You can use your loan proceeds to make repairs. Want to improve your living space? A personal loan can make that possible, too.

One benefit of taking out a personal loan is that you’re likely to get your money quickly. Rocket says these loans commonly close in seven business days or less.

But there are some situations where signing a personal loan is a poor choice. Here are three such scenarios.

1. When you’re buying a home

Generally speaking, you cannot use a personal loan to come up with a down payment on a home. Most conventional mortgage lenders will not allow you to do this, says Experian. And the same holds true for FHA lenders.

However, Experian notes that some lenders might technically allow you to use a personal loan for a home down payment. But even so, going this route could be challenging.

Taking out a personal loan for a down payment on a home will add to your debt. And a big factor that mortgage lenders look at when evaluating loan candidates is their debt-to-income ratio, which measures how much debt you have relative to your income. If a personal loan drives that ratio way up, your chances of getting mortgage approval go way down.

2. When you’re buying a car

You may be able to use the proceeds from a personal loan to buy a car. But signing an auto loan could result in a lower interest rate.

Personal loans are unsecured, so they’re not tied to a specific asset. As such, lenders take on a fair amount of risk when writing them.

Auto loans, on the other hand, are secured by the vehicles they’re used to finance. Auto loan lenders know that if a borrower defaults on their loan, they can repossess the vehicle being financed to get repaid if needed. Because auto loan lenders have that protection, they can commonly offer lower interest rates than what personal loan lenders can.

3. When you’re buying something you don’t need

A personal loan allows you to borrow money for any purpose. But that doesn’t mean you should borrow for something that’s a pure want, like a vacation or a wardrobe update (assuming you don’t need one for work).

Falling behind on a personal loan could cause serious damage to your credit score. And remember, you’re still borrowing money and paying interest on that sum. So if you’re going to subject yourself to those monthly payments, it should be because you needed to borrow, such as to fix your roof — not because you simply wanted something you couldn’t afford.

Signing a personal loan could be a good solution when your vehicle needs work or you’re looking to consolidate other more expensive debts, like credit card balances. But be very careful when taking one out, and aim to do so for the right reasons.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Online banking works well for me. But read on to see why I have a pile of cash in a physical bank nearby. 

If you’re someone who prefers to do your banking online, you’re not alone. Data from Forbes reveals that as of 2022, 78% of U.S. adults preferred to do their banking online.

Meanwhile, I have my reasons for using an online bank. For one thing, it’s convenient. I can deposit checks using my phone and pay bills without having to leave my couch.

But also, online banks tend to have less overhead than brick-and-mortar banks. Because of this, they’re commonly able to offer more attractive rates on products like savings accounts and CDs. In fact, the rate I get on my savings account is considerably higher than what most brick-and-mortar establishments are paying.

But while I do the bulk of my banking online, and have for years, I still make a point to keep $10,000 in a physical bank with a branch in my neighborhood. Here’s why.

It’s all about having quick access to cash

One downside of using an online bank is that you can’t walk in and access physical money when you need it. And that’s why I can’t keep all of my savings at an online bank. Rather, I make sure to keep around $10,000 in a savings account at a local brick-and-mortar bank. This way, if I ever need cash on the spot, I could walk in and take a withdrawal.

Now, you may be thinking, “In what scenario would this woman need thousands of dollars in cash right away?” But you’d be surprised.

Years back, we needed to do an expensive home repair that was going to cost us thousands of dollars. The repair was an emergency, and we couldn’t put it off even for a few days.

The contractor we’d found quoted us one rate for using a credit card, another for using a check, and a third for paying with a mountain of cold, hard cash. And as you might imagine, the cash price was the lowest of the bunch.

In the end, we actually opted to use our credit card for a couple of reasons. First, we wanted protection in case something went wrong. Secondly, we stood to accumulate points on our reward credit card, which somewhat bridged the gap between the lower cash price.

But that was one actual situation that happened to us where we might have needed to withdraw a large amount of cash and hand it over. And so I make a point to keep a nice balance at a brick-and-mortar bank just in case.

A move you may want to consider

You don’t necessarily need to keep $10,000 at a brick-and-mortar bank when you have an online bank that’s paying you a lot more interest on your money. And if I’m being honest, that $10,000 is really an arbitrary sum my husband and I landed on years ago. So you definitely don’t have to follow my lead there.

But if you’re someone who banks online, it could still very much pay to keep a few thousand dollars at a physical bank. You never know when you might need cash on the spot, and this way, you buy yourself that option.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Americans reported nearly 442,000 incidents of credit card information being misused last year. Take a look at how credit card info often gets stolen. 

Last year, credit card fraud topped the list of types of reported identity theft, according to the Federal Trade Commission (FTC). There were nearly 442,000 reports from people who said their information was misused with an existing credit card or when they applied for a new one, up 13% from the previous year.

And that fraud adds up to a lot of money being spent. Stolen credit card information contributed to the broader fraud category, in which $8.8 billion was stolen in 2022, a shocking $2.6 billion increase from 2021, according to the FTC.

While credit card companies typically protect customers from having to pay for items that were purchased with stolen credit card information, it can still be a significant headache to have your card — and potentially your identity — stolen.

Here are the ways your credit card information often gets stolen and how to keep yourself safe.

Phishing

Phishing involves scammers sending a message, like an email, text, or phone call, that appears to come from a legitimate source, like a bank. The message typically asks the recipient to click on a link to a website that will eventually ask for their credit card number.

A specialty version of this scam is spear phishing, a sophisticated, tailored attack sent to someone to steal their credit card information.

Skimming

Credit card skimming is when a device is placed over a card reader at a register and it steals your card information when you make a purchase, according to Capital One.

Some criminals have placed skimmers at gas pumps, which then read and store the card’s information when swiped.

Shimming

Shimming is similar to skimming, except it differs in that this theft targets credit cards with the small, embedded microchips in them, called EMV® chips. A paper-thin device, or shim, is put inside a credit card machine, according to Experian, and it then copies and stores the credit card info when you put the card into the machine.

It’s worth noting that chip credit cards are still more secure than using a card’s magnetic strip.

Physical theft

This one is a more obvious way to lose your credit card information. If you’ve ever lost your wallet or had it stolen, you know there’s a possibility your credit card will be used to make fraudulent purchases.

Data breach

A data breach can occur at a company you’ve done business with or purchased from. If the company is the victim of a phishing attack or is targeted by hackers, your credit information can be stolen in the process, according to Chase.

Public wifi

Public wifi connections, like at a coffee shop, can be popular places for criminals because these networks often aren’t secure.

Equifax says that anyone can easily access these networks, and some don’t use proper encryption, making them easy targets for criminals to access someone’s personal information.

Malware and spyware

Just like companies, you can experience a data breach as well. Your credit card information could be compromised if your device is infected with malware — software that’s intentionally designed to cause harm — or with spyware, which is software installed on your device without your knowledge to steal personal information, according to McAfee.

Account takeover

Sometimes criminals get your credit card information by gaining access to personal information, like through an e-commerce account. For example, someone could buy your login credentials on the dark web, then use them to log in to your favorite online shopping platform and steal your credit card information stored in that account.

Mail theft

Sometimes criminals use less sophisticated ways of stealing your identity, like sifting through your mail looking for credit card numbers. According to Allstate Insurance, this may involve looking through your trash for personal information or even filling out a fraudulent change-of-address form to have your mail forwarded to them.

Social engineering

Social engineering is a technique where a criminal poses as someone you know or trust to steal your credit card information. According to HSBC, this sometimes happens on social media platforms where someone poses as your friend, wins over your trust, and then eventually asks you for credit card information.

Database SQL injection

Hackers can sometimes put malicious code in the backend of an online database that displays sensitive information, like credit card numbers. When this happens, criminals see your credit card information when you use an infected website or app.

How to protect yourself from credit card fraud

If you’re thinking of switching to all cash after reading this, there’s an easier way to protect yourself. First, the FTC recommends never giving out your credit card information over the phone unless you’re the one who initiated the call. The organization also says you should never leave your account information out in the open.

Setting up two-factor authentication for accounts that use your credit card information is also recommended. This security protection will require you to enter a code or log in from an app before you can access your account, which makes it harder for criminals to use your stolen account information online.

And finally, using chip cards can help reduce fraud because they’re more secure than swiping your card’s magnetic strip. Taking these simple steps can help you avoid having your credit card information stolen and make it harder for criminals to impersonate you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Target. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.

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