The Benefits of a Personal Loan (and tips you don’t know)

Getting a personal loan is a major financial decision that isn’t to be taken lightly. There are a number of benefits and risks when it comes to obtaining financing from one of a personal loan that you should be aware of. While there are many reasons why you may want to get a personal loan, it’s important to understand what you’re getting into before signing on the dotted line. Read on for more information about the pros and cons of personal loans.

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What are the Benefits of Obtaining a Personal Loan?

If you are looking to consolidate high-interest debts, in need of money for a major expense or a home improvement project and you are able to afford repayment, personal loans may be an excellent option. For many people, personal loans are unsecured. This means the loan comes with competitive interest rates. Since it doesn’t require collateral, unsecured loans like installment loans or personal loans tend to cost more for borrowing.

1. Helps Borrowers Build Credit

When you are taking out a personal or installment loan, you should be able to get one that does not require collateral. This is important for people who may have poor or no credit history. Lending institutions report your repayments made on time, which has an impact on your credit score, and can help to build up good credit if you’re consistent with payments.

If you are diligent in paying back, your FICO and credit score can benefit. This is because payments history makes up 35% of your score. So if you are consistent with making loan repayments on time then this can help to increase your score in the long run.

For those dealing with limited options due to bad credit, installment loans and personal loans from Personal Money Network are often a good option when you need money now and are looking for fast funds to provide assistance. 

2. Can Be Used for Almost Anything

Because personal loans are so versatile, they’re often a popular financing option. They can cover everything from home improvements to auto repair costs and event-related expenses, like a wedding and much more. Personal loans and installment loans make for an easy way to get the funds you need for most emergencies, events and other purposes.

3. Makes It Easy to Consolidate Debt

A debt consolidation loan is a personal loan that is used to pay off an individual’s other loans and credit card balances. Debt consolidation can be especially helpful if you have more than one lender, as it will streamline your finances by reducing the number of payments you need to make each month. With having less payments to monitor, you don’t have as much to worry about in terms of missing payments or due dates.

4. Borrowers Pay for Purchases Over Time

With a personal loan, you can make larger purchases and then pay for them over time with monthly  installment payments instead of saving up money to have the entire amount to make a purchase.. While this is a great strategy if the purchase is necessary, it can be dangerous if you rely on personal loans to go on vacation or cover other discretionary spending. Always borrow responsibly to keep yourself out of hot water or creating personal finance problems for yourself later.

5. Offer Competitive Rates

The APR (annualized percentage rate) for a personal loan is the amount of money you will need to pay back. An APR is often between 5% and 36%. Many people would choose a personal loan over using a credit card as the lower APR just makes sense in some cases. The interest rates on these loans can be higher than those with fair or poor credit ratings. Personal loan APRs vary based on factors such as your income and debt-to-income ratio. A personal loan is more likely to be an option for those with good credit or better. For those with bad credit, options like installment loans or payday loans are available to consider.

The options available to you often depend on your own credit history. Those with a higher score are more likely to be eligible for better options and interest rates.

For those with poor credit, that might be unbanked or underbanked, there is no time like the present to try to get your finances under control. 

Start by paying off any debt as quickly as possible, or at least making the necessary payments when they are due. Be aware that some loans have penalties if paid off early. If that should be the case with a loan you have, just continue to follow the payment due dates. Also create a budget if you haven’t already, and build an emergency fund to have on standby. Some simple planning for tomorrow and the future can put you in a much better position later.

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