Personal loans are a wonderful way of paying for any unplanned or unanticipated expenses such as, for consolidating high-interest credit card loans, getting car repairs done, or just getting cash at a really low rate. If you are planning to take out a personal loan, it is best to know the basics.
Home mortgages or car loans are often secured by collateral but personal loans are not. Even though lenders who provide you with personal loans may ask you the purpose of borrowing funds, you are free to use the money in whichever way you like.
Personal loans would necessitate set payments as per a regular schedule extending over a precise time period. Personal loans are not like credit card revolving loans that require only minimum payments and promise open-ended terms.
Consolidation and Refinancing Debt
The credit card debts come at higher interest rates as compared to the personal loan rates. You could pay off your debt faster if you consolidate your debt and get a relatively lower interest rate.
It is likely that the rate of your student loan is quite high and you could refinance it to a relatively lower rate. This would certainly save you some money. It is important to do a thorough research before taking the final plunge.
Raise Funds for Any Major Purchase
If you are planning on financing something you are purchasing from a retailer like a furniture piece, a personal loan may be of great help as it comes with a certainly better interest rate as compared to the shop’s financing offer.
Often retailers are known to be offering zero percent financing mostly for a stipulated time period. If you could pay off the loan during that set period, it would be a good deal for you.
Often retailers would be offering a choice between a cash rebate and zero percent financing for a stipulated period. Getting a loan with a low-interest from a credit union or a bank and availing the cash discount could be saving you some amount of money.
Enhance Your Credit
By taking a personal loan you could boost your credit score in some cases. An important factor in the determination of your accurate credit score is your actual credit utilization ratio. This is supposed to be the actual difference between your real debt and the credit available to you. The ratio is effectively calculated by dividing the debt by the available credit. If you have a lower credit utilization ratio it would be enhancing your credit score.
Shopping for Best Possible Rate
You need to shop around to get the best rate. The interest rate of any personal loan would be determined and fixed by your lender depending on your total debt as against your income and your exact credit score. Shopping for a loan with best interest rate would be saving you few hundred dollars. Before you send in your loan application enquire about credit qualifications. Do not forget that with every loan application, your credit score is lowered slightly. When you apply for numerous loans it could have an adverse impact on your credit score.
Opt for Secured Loans
Most personal loans do not necessitate collateral. But you could look for secured personal loan choices. Securing your personal loan with certificates of deposit, money from savings or stocks could help in lowering your interest rate. This would be effectively lowering your loan cost and help you pay off the loan much faster.
Conclusion
A personal loan could be your best choice. But always keep in mind the above facts. Do not forget to make all the necessary payments on time.