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7 Things to Consider Before Taking a Military Personal Loan


As a member of the military community, you likely encounter unique challenges when it comes to managing your finances. These might include childcare issues, uncertainties related to spousal income, and frequent Permanent Change of Station (PCS) moves. Navigating these circumstances can result in unforeseen expenses. The financial strategies you use should take into account the dynamic nature of military life.

What Is a Personal Loan?

A personal loan is a financial tool you can use to borrow a fixed amount from a lender. You’re then obligated to repay it in installments over a predetermined period. Personal loans are unsecured, meaning no collateral is required from you to get the loan. They also offer flexibility in how you spend the funds, making it a suitable way for you to address various needs.

Taking out a personal loan can provide quick financial relief when you are faced with significant expenses such as emergency medical bills, home renovations, or consolidating debts. 

Pros and Cons of Personal Loans

Before you apply for a personal loan, you’ll want to consider these pros and cons and how they apply to your situation.

Advantages of Personal Loans

Personal loans are a financial solution for individuals who need a flexible loan right away, and they offer several advantages, such as:

  • One upfront, lump sum loan amount.
  • Fixed monthly payments to repay the loan.
  • Typically lower interest rates than other financial tools, such as credit cards. 
  • Funding is typically available in about 1-7 days.
  • Can be used for nearly any purpose.
  • No collateral requirement for you to secure the loan.

Drawbacks of Personal Loans

While personal loans may seem like an ideal, immediate solution, make sure you consider these potential drawbacks before applying, including: 

  • May come with a hefty interest rate (11.53% on average as of 2023).
  • Often require origination fees just to start the loan.
  • More eligibility requirements than other loans.
  • Increase your monthly debt payments.
  • May damage your credit if you miss a payment.
  • Penalties for not making payments on time or for prepaying in some cases.

What to Do Before Applying for a Military Personal Loan 

Military personal loans are specifically designed for active-duty military personnel, Veterans, and their families. Lenders offering these loans may consider your military affiliation as a positive factor that potentially leads to more lenient approval standards or lower interest rates. Non-military personal loans, on the other hand, are available to the general public and follow standard lending criteria. 

While both loan types typically provide unsecured funding, military personal loans may offer specific benefits, such as interest rate caps imposed by the Military Lending Act (MLA) to protect servicemembers from excessive borrowing costs.

While this is good news for servicemembers, we recommend following these guidelines when considering whether to apply for a military personal loan. 

1. Assess Your Income Versus Your Current Expenses

Start your financial review process by weighing how much income you and your family bring in against all of your mandatory monthly payments. This is a tough but proactive step that ensures you make borrowing decisions with your current financial situation in mind. This is also a good opportunity to see if you can reduce any other payments or curb your overall spending to help ease your financial situation.

Calculate your household's total income to determine if it adequately covers monthly expenses. Essential bills are a priority but don’t forget to include discretionary spending on activities like kids’ activities, dining out and entertainment. Be realistic about your expenses, as you may discover you’ll have to give up some discretionary spending to pay back a loan. Crunching the numbers will give you a clearer picture of your financial situation so you can make informed decisions about whether a military personal loan is necessary and feasible. 

As an active servicemember, your military pay provides a reliable source of income, but remember to take into account any additional income your family relies on, such as your spouse's earnings.  Changes to your situation, including job loss or the need to reduce working hours for caregiving, can impact your financial stability.

2. Check Your Current Loans

Do you already have other loans you’re paying off? Consider using a new loan to strategically address higher-interest obligations, such as previous personal loans, credit cards, or car loans. Many of these loans carry interest rates above the favorable rate offered though the AAFMAA Member benefit called the Career Assistance Program (CAP ) Loan. If you qualify* you can consolidate debt into an AAFMAA's CAP Loan at a low 1.5% interest rate (as of 2024), potentially saving a substantial amount on interest payments over time. 

Prioritize paying off high-interest debts. This will allow you to streamline your debt payments and make the most of the favorable terms provided by AAFMAA’s military loan option.

3. Calculate Your Upcoming Expenses

In addition to looking at loans you’re already paying off, take a careful look at your upcoming expenses. Make sure you have a comprehensive understanding of your financial needs by tallying up essential costs such as mortgage payments, utilities, car payments, and grocery bills. Accurately assessing your regular expenses provides a realistic view of the funds required so you avoid overspending and possibly overborrowing. Overborrowing happens when you take out a larger loan than necessary, which can lead to more financial challenges when it comes time to repay the loan.

This kind of careful approach ensures that your loan aligns precisely with your immediate financial needs. In this context, AAFMAA's $5,000 CAP Loan may be an excellent choice because it offers an amount that covers necessities without exceeding what's required. This step aligns your borrowing with your genuine needs, promoting responsible financial management.

4. Don’t Look Too Far Ahead

Although you must consider your future needs, there’s such a thing as looking too far ahead. Instead, prioritize the present. Concentrate on current necessities to prevent accumulating debt that may become too challenging to repay if your circumstances change. For now, delay major expenses, such as buying a new car or planning extravagant vacations, until you have a better understanding of what your financial future will look like.

5. Assess the Impact on Your Security Clearance 

Security clearance reviews often scrutinize an individual's financial situation. Your debt-to-income ratio will be a significant consideration in security clearance decisions. Having a personal loan could be a factor considered during these assessments. While there isn't a specific rule stating that having a personal loan automatically affects your ability to obtain a security clearance, certain financial situations such as excessive debt, poor credit, or financial instability may raise concerns. Responsibly taking out a personal loan may not be inherently detrimental, but you should be cautious about accumulating too much debt.

6. Examine Deployment Clauses in Loan Agreements

Lenders may incorporate clauses that specifically address changes in income or deployment status, introducing unique considerations for servicemembers. In situations where a borrower faces deployment, their income stream may be affected, potentially leading to financial strain. Deployment clauses can guide how the lender handles such circumstances.

These clauses might outline provisions for temporary payment adjustments, deferment options, or other accommodations to ease the financial burden during deployment periods. You should carefully review these clauses to ensure you’re aware of the lender's policies and to anticipate any potential challenges that may arise during deployment.

7. Know Your Lender

Get to know your lender before committing to a loan from them. While many banks offer enticing low-interest loans, not all understand the distinctive needs of your military lifestyle or can adapt to your evolving career. 

If you’re looking for products tailored exclusively for the military community that can help secure your financial future, consider AAFMAA. As an AAFMAA Member, you can be assured that we will support you through the various life changes that come with being a servicemember, such as duty station shifts, deployments, family growth, and retirement planning. Unlike non-specialized lenders, we understand the intricacies of military life and we’re committed to assisting you through these challenges. 

Apply for Your AAFMAA CAP Loan Today

More than 45,000 servicemembers have trusted AAFMAA’s Career Assistance Program (CAP) Loan Member benefit to provide the financial support they need. Learn more about us and our low-interest rate, generous repayment schedule, and other AAFMAA Member benefits today!

*Terms and conditions apply. See aafmaa.com/cap for full eligibility criteria.

This article was originally published May 12, 2020.