Are you considering taking out a personal loan and are wondering what the benefits could be? Perhaps you are looking to boost your credit score and want to know if a personal loan could help? Maybe you just want to know more about personal loans? Whatever your reason might be, we have the answer for you!
The world of financing and loans can be a murky one; with lots of lenders out there offering different loans with interest rates and terms; it can be challenging to navigate, especially if you are taking your first loan out. It can make any money worries you have even more stressful, which is the last thing you need when borrowing money.
But no more! Today we are here to help you! Keep reading to find out the fifteen benefits for obtaining a personal loan!
What is a personal loan?
Before we dive into the benefits of a personal loan, let’s have a quick recap of what one is for those in the room that need it. A personal loan allows you to borrow money from a lender like a bank or credit union. Unlike mortgages or other loans, you can use a personal loan for a range of things such as home renovations or to cover an emergency medical bill. T
These loans allow you to cover a purchase and repay the money over a set amount of months. The term of the loan and the amount of the monthly payments will be stated to you by the lender before going ahead with the loan, so you are aware of the situation at all times. On top of the money borrowed, you will have to pay interest too. These interest rates are usually lower than credit cards or other loans, but be sure to check this before agreeing on your loan.
The two types of personal loans
Personal loans come in two main types: secured and unsecured loans. You must know the difference before applying for one. A secured personal loan requires you to provide collateral to the lender, which you can take to pay for the loan should you default on the loan.
Unsecured personal loans, however, require no collateral and rely on your credit rating alone. Those with good credit ratings can expect to end up being able to borrow more money and will have lower interest rates. However, if you have poor credit, you might find yourself with a loan with higher interest rates or lower amounts you can borrow as the lender will deem you a risk.
When deciding which type of personal loan to opt for, it’s best to weigh up the pros and cons before moving forward. You can always speak to a financial advisor if you aren’t sure which is the best option.
15 Benefits of a personal loan
Now that we have covered what a personal loan is, let’s get into those benefits! Below we have a list of the fifteen benefits of a personal loan to help you decide if it’s the loan for you or not.
Lower interest rates
Compared to credit cards, personal loans often have lower interest rates. On average, the interest rate is 11.84%, whereas the average credit card interest rate was 16.04%! That’s quite a difference! Loans with lower interest rates mean that you will be paying back less money, allowing you to reduce your debt quickly and pay the loan off hopefully.
Those with excellent credit history can usually get even lower interest rates of between 6 to 8% and higher amounts than your credit card limit. If you were looking to borrow money to carry out home renovations, a personal loan with its higher limit and lower interest rates is a fantastic way to do this!
You can borrow more money
Compared to credit cards or other loans, personal loans usually come with higher limits. Being able to borrow more money will allow you to make bigger purchases such as weddings or vacations and pay them off over longer periods that suit you. The ability to borrow larger amounts sets personal loans apart from others and can be a lifeline for many people!
If you get a surprise medical or vet bill, larger personal loans will be a lifesaver! Be sure to check the loan terms before signing it, so you are aware of the repayments and timeframe of the loan.
They are flexible
You can take out a personal loan for a range of payments making them super flexible and versatile! While some loans can only be used for specific things (like to purchase a car), you aren’t limited with a personal loan.
Typically, people use these loans to pay for renovations, major purchases, or consolidating debts. Lenders will still have a list of approved uses for the loan, but there is far more freedom here. Be sure to speak with the lender before taking out the loan to ensure it is appropriate.
You can consolidate other debt
If you have a few credit cards with high-interest rates you are struggling with, a personal loan can help. You can take out the loan to pay off all your credit cards in full (if the loan is large enough), leaving you with just one loan to repay. As personal loans can have lower interest rates, you can continue to repay your debt without incurring large interest charges.
You will be able to pay less back in the long run, saving you money! Having one loan repayment leave your account instead of a few payments to different credit cards can also make your finances easier to manage too.
Easier to manage
As we just mentioned, having one payment leave your account every month is far easier to manage than, say, three or more payments to different credit cards. As your loan repayment will be a fixed-rate monthly payment, you won’t need to remember multiple payment due dates or different interest rates that can be confusing.
They are reliable
Personal loans are extremely reliable and predictable, saving you from any confusion! You will know the total amount you have to pay back, how much money you need to pay each month, and for how long. Knowing this at the start of the loan and that this won’t change for the duration of the loan provides peace of mind for many borrowers.
The lender will be clear with you during the application process. And, before you sign the terms and repayments, there are never any surprises!
You don’t need collateral
If you opt for an unsecured personal loan, you won’t need collateral to get approved. You won’t need to put up an asset like your home or car to guarantee that you will make the payments on the loan.
You won’t need to worry about losing your home or car if you fail to make the repayments, but it’s worth noting that failing to make the payments on an unsecured personal loan can have dire financial consequences. Be sure to research an unsecured personal loan before taking one out thoroughly.
It’s worth noting that secured personal loans do require collateral. It could be in the form of savings, or an asset that holds value, such as a vehicle.
You can get the funds quickly
Personal loans often have quick turnaround times, meaning you can get the funds in your account the same day that you apply for the loan! It’s worth noting that you only get the funds on the same business day if you meet the necessary criteria and provide the necessary verification the lender has asked for. In most cases, though, you will see the money arrive pretty quickly, allowing you to go ahead with any purchases or start consolidating your debt.
Personal loans are easy to apply for
Loans might make you think of lots of boring and confusing paperwork, but the application process for a personal loan is quite straightforward. Compared to loans that require collateral to be approved, personal loans can be confirmed quickly.
Applicants usually complete an application form with their basic information included (name, address, date of birth, social security number, and employment/income). You will also need to consent to a credit check. This will determine your suitability for the loan.
Loan approvals. aregenerally quick. And if approved, you can start spending or using the money.
They are flexible
Personal loans can be more flexible than other types of loans you can apply for. Many personal loans come with three or five-year loans, although you can get personal loans with up to ten years. The longer the term on your loan is, the lower your monthly payments will be. These can be excellent options for those who can’t afford larger monthly payments.
You will still get the same fixed-rate monthly payment no matter the loan length. This way, you can budget easily and always know where you stand with your finances.
You can build your credit history
If you don’t have the best credit score or history, a personal loan can help you there. Check that your lender will report the payment activity of your loan to credit bureaus before signing to ensure that it will help your credit score grow! Every time you make an on-time payment for your loan, your credit score will get a boost.
This will show other lenders that you are reliable and capable of making your repayments on time. Lenders don’t like lending to people who have defaulted on loans before or have a poor credit history. Using a loan to build your credit score can come in handy when applying for larger loans or mortgages.
It’s worth noting that if you have a poor credit history, you might only qualify for small unsecured loans. These often come with higher interest rates, so be sure to read the fine print before applying!
You can get them with bad credit
Usually, people with bad credit will struggle with loan approvals. Indeed, their only option is often payday loans and astronomical interest rates as ways to borrow money. But there are plenty of personal loans that will accept people with bad credit.
Like I said above, you can then use these loans to boost your credit score and gain access to other larger loans. Being able to have a loan when you have poor credit is fantastic news to many and a clear benefit of personal loans! Just be mindful that these can come with higher interest rates or high origination fees. And, you will need to pay for them up front.
You can usually adjust the payments
If you find yourself struggling to make the repayments or an emergency has occurred, talk to your lender. Lenders would rather this than stop paying altogether. Often, even on fixed-term loans, you can extend the loan length to lower the payments or lower payments for the next few months until things return to normal for yourself.
It’s always better to do this than stop making your repayments, as that can impact your credit score. Not all lenders will be forthcoming with this information, so be sure to reach out and speak to them if you are struggling. There is always a way to deal with money issues, so don’t suffer in silence.
There are lots of choices
Banks, credit bureaus, and online lenders are just some of the places you can apply and get approved for a personal loan. The range of choices out there means you can almost always find a better deal. Whether it’s a longer term or lower interest rate, you don’t need to go with the first personal loan that you find!
We recommend utilizing comparison sites to find a personal loan that ticks all your boxes and will work best for you. A clear benefit of personal loans is that you can find one that tailors you perfectly.
You can still keep your savings
As personal loans don’t often require collateral, you don’t need to part with your savings if you wish. For those emergency medical bills, unexpected car repairs, or when a necessary expense is larger than your savings or would deplete them entirely, you can turn to a personal loan.
The loan will allow you to spread the cost of the unexpected expense over several months or years without needing to dip into your savings. It makes the larger purchase more manageable for many people, and you know that if something goes wrong, you still have your rainy day fund should you need it!
Here are some last minute queries about personal loans:
As beneficial as personal loans are, they are not without their drawbacks! Depending on the loan you select, you could be hit with high-interest rates that don’t benefit you and leave you paying more than if you used a credit card! You can also encounter late fees and penalties that can be quite costly if you send the repayment to the lender late.
These late payments can also impact your credit score. If you happen to miss a payment, say if your paycheck is late, it can cause your credit score to drop! You might find you have a fluctuating credit score, which can put off future lenders from lending you money. You will need to make your payments on time to prevent your credit score from being impacted.
Yes, once you are approved for the personal loan and all the paperwork is signed, your lender will deposit the cash. The cash is usually placed in your bank account (using the details you have supplied the lender with), and you can use it as you wish. How quickly this happens varies from lender to lender, but if you are approved in the morning or early afternoon, you can expect the money in your account the same day!
The lender should explain how long it takes for the money to be transferred to you once you have been approved for the loan.
Yes, a personal loan does cost you money. On top of the money that you borrowed, there will be interest payments you need to make. These will be added to your monthly payments, and usually, the interest rate is fixed on a personal loan (we recommend only applying for loans with a fixed interest rate). The interest rate is often how the lender makes their money, and the rate can vary, so be sure to shop around to find the best deal.
Depending on the personal loan, you might also be asked to pay fees when applying for the loan or a small deposit to secure the loan. It’s rare that a deposit is used for a personal loan, but not unheard of. You will also have fees if you miss a payment or make your monthly payment later than scheduled. The amount of these fees varies from lender to lender, so be sure to check this in the fine print before agreeing to the loan.
If you default on your loan (late with a payment by 30-90 days), your credit score will hit. As you have not paid the money, you will see the score drop, making it harder for you to secure loans in the future. Your details will also be passed to an in-house collections department with the lender or sold to a third-party debt collector.
They will then contact you to take the payments off you. Where possible, you will want to enter negotiations to create a payment plan that works for you to pay the debt off and avoid any further issues.
If you still do not make the payments, you can be taken to court, or the debt collector might seize assets as a way to recoup their money. You might have any savings or your car taken from you and sold to cover your debt.
You will want to avoid this as much as possible. If you struggle to make your payments, contact the lender immediately. They don’t want the situation to escalate further and can help you make arrangements to ease the financial stress. Don’t suffer in silence or ignore the issue, as that will only make it worse.
Personal loans are used for a wide range of purposes, most of which are approved by lenders. To see what uses your lender deems appropriate for a personal loan, speak to them directly or check the fine print in any paperwork relating to the personal loan.
Commonly, personal loans are used for the following purposes:
– To consolidate debts and other loans
– Home improvements/renovations
– Car repairs or purchases
– Emergency medical bills
– Emergency vet bills
– Start a small business
– Pay for a wedding
– Pay for vacations
– To make large purchases like an appliance or furniture.
This is by no means an exhaustive list but shows you the wide range of uses personal loans have. If there is a large purchase you need to make, a personal loan comes in handy, allowing you to spread the cost over several months.
And there you have it, 15 benefits a personal loan can give you! It’s worth noting that you might not experience all of these benefits, but you are likely to notice a few! Whether a personal business loan helps you consolidate your debt and reduce the amount of interest you are paying or allows you to boost your credit rating, these loans can be helpful!
Remember to read the fine print before signing any paperwork and ensure that you make your payments on time. If you do find yourself struggling with the repayments, be sure to speak to your lender. They can often offer you advice or adjust the payments if necessary to avoid any financial difficulty for yourself.