These loans are also referred to as ‘unsecured debt’ and you can avail these loans on the sole basis of your credit score. Your credit history will help the lenders determine the kind of interest rate they can provide you with. The interest rates are generally higher for personal loans and you need to ensure that your credit history is good. This will help you lower the rates of your personal loan.
Personal loans assist you in consolidating debts, and paying bills, and help you out of an unexpected financial bind. In addition, they can be used to fund a new business venture. Not like home loans, personal loans are expensive but easy to get. Your banks come as a great help for you when you face a paucity of funds. Each and every bank has a different interest rate for personal loans. Nowadays, taking a personal loan is just a click away.
Though, applying for a personal loan can be a bit stressful, getting a loan can be a huge help when you actually need it. Hence, here are a few things that you must consider while applying for a personal loan:
- Choose the right lender: Financial sources that offer personal loans include online lenders, credit unions, and banks. Each of these offers different interest rates and their terms vary. Therefore, you must shop around and find a perfect lender that offers services that suits your needs.
- Must read the fine print: Usually, there are differences in the terms offered by different lenders. Thus, you must read the fine print and ensure that you ask for a full disclosure of all the loan terms. Also, see if the repayment terms and monthly payment work for you because there could be a fee for late payments.
- Ensure that a personal loan offers you a great deal: Generally, consumers use personal loans for different purposes. For example, you can use them for home improvement purposes, to invest in your business, to consolidate your credit card debt, and take a vacation. Hence, ensure that it offers you the best deal.
- You must measure your financial situation before you apply for a personal loan. There are many lenders who will try to ply you with more than what you can handle. It particularly means that you might end up biting off more than what you can chew and therefore, you may fall into a debt trap.
While you have gone through the above list of things to consider, here is a list of benefits you could receive from a personal loan:
- Lower interest rates:
With your credit card balances and interest rates hitting new highs, a personal loan can help you overcome that debt. Let’s assume you max out your credit card to cover up damages caused to your car in an accident. Depending on how much you can borrow based on your credit scores, a personal loan can help you take care of your credit card balance with a lower interest rate and easy EMIs. In most cases, personal loan interest rates are comparatively cheaper as compared to other types of loans.
The usage of your personal loan depends on how you choose to use it. You can use it in a variety of ways. Unlike your credit amount which can only be used in a specific place or store, a personal loan is comparatively flexible and can be used to pay cash to vendors who refuse to accept credit cards. You can also redeem numerous amounts of discounts that you would otherwise lose out on while you pay with your credit card.
2. Improve your credit usage profile:
Based on the assumption above, you have maxed out your credit card. According to major companies that tabulate your credit scores for a loan, they believe your credit utilization accounts for nearly 30% of your credit score. Now that you’ve sailed through your credit card, it does make sense to opt for a personal loan which would increase your available credit and pay off your dues.
3. Put an end to revolving balances and variable interest rates:
Credit cards let you continuously spend money along your credit line. While you do make your payments on time, your balance can still increase if you continue using your card. These credit cards also carry varied interest rates that are capable of changing the smallest payments into the largest ones. Fixed-rate personal loans typically offer fixed interest rates with easy EMI’s that can be paid across a pre-determined period of time.
4. Diversify your credit profile:
Let’s say you have a number of credit cards. Opting for a personal loan would diversify your credit profile to show the usage of different credit cards and also an already established loan. The types of credit amount to another 10% of your credit score and hence a diversity in the same only adds to an increase in your scores.
The example of a credit card will only show you how we usually spend our money in this new age of commerce. Personal loans will offer you the above-mentioned benefits irrespective of the stage of life in which you opt for it in.
ABOUT THE AUTHOR: Jessica S Johnson, Hey! all, I personally write all posts which vary in Finance as car loans, home loans, and personal loans, as an interesting means of noting, chronicling, and expressing my ideas, projects, inspirations, and daydreams. It has constantly evolved ever since and become more Finance to travel oriented.