You’ve probably heard of personal loans before. Personal loans are borrowed money, from a bank or other financial institution, that is used for a variety of personal reasons. Maybe you’re in the market for a new car, maybe you’re looking to pay down a credit card, or maybe you’re getting married and paying for the wedding yourself – all valid reasons to take out a personal loan.
Personal loans are usually an unsecured loan, meaning you don’t need to back the loan with some kind of collateral (such as a house, for example). What makes them different from other kinds of loans is that you can use the loan for personal reasons, rather than to buy a house or pay for schooling. If you have bad credit, you may need to seek special personal loans that can accept the conditions of your bad credit.
Personal loans are paid back at a set monthly rate over the course of two to six years, depending on the terms of your loan. The following are six personal loan benefits and how they are able to help you in your everyday life:
Benefit #1: Use the loan to pay for expenses
One of the best personal loan benefits is that you can use it to cover any urgent personal expenses. These are usually major one-off purchases such as a new car, home renovation, or even a vacation.
A personal loan can also help cover expensive events like weddings. That way, you have the cash you need upfront and you can buy whatever it is you need to buy, then pay the money back in monthly installments with a lower interest than that of a credit card.
Benefit #2: Use the loan for unplanned emergency expenses
Unfortunately, not all expenses are planned. You might take out a personal loan to cover unplanned emergency expenses like emergency car repairs not covered by insurance, emergency veterinary expenses, medical bills, and so on. Personal loans typically don’t take very long to go through, so they’re a good option when you need cash fairly quickly.
Benefit #3: Use the loan to refinance high-interest debt
If you have a high-interest credit card balance, it would be in your best interest to refinance the debt with a personal loan. Doing so will lower the amount of interest you’re paying and also lower the monthly payment you’re making. You can refinance other types of debt with a personal loan.
For example, you can refinance your car loan that you may have gotten with a higher interest rate due to a lower credit score (which has now improved). Now you’ll be paying less in interest so you should be able to pay the debt off faster.
Benefit #4: Use the loan to consolidate multiple debts
Another reason why personal loans are taken out is to consolidate multiple existing loans and lines of credit. This way you’ll only have one single loan and it will usually come with a lower interest rate.
There are many personal loans benefits:
- the payments are predictable
- it’s easier to manage one payment rather than several, lower interest, and even lower payment amounts.
When looking to get a personal loan to consolidate multiple debts, make sure of the following: that you’re getting a lower interest rate than what you were paying before, that it has a lower monthly payment than all of the debts you were paying before, and that the loan is large enough to cover all of your debts.
Benefit #5: Use the loan to build credit
Another good reason to take out a personal loan is to help build your credit. Maybe you’re a student and just started building your credit, or maybe you’re looking to improve your credit by making monthly payments on time. Taking out a personal loan is perfect for these two scenarios.
It’s a great alternative to taking out a high-interest credit card. Since 10% of your credit score is based on what is called a credit mix – which is the different types of credit you have – you can raise your score by adding in a personal loan to the types of credit you already have. Just make sure you make your payments on time!
Benefit #6: Use the loan for a predictable repayment schedule
Personal loans come with fixed interest rates, fixed monthly payment amounts, and repayment terms. Once you are approved for the personal loan, you’ll learn all of this information right away. Since things are likely to stay the same month to month, you don’t have to worry about any ugly surprises. Knowing how much you have to pay back each month will also make it easier to budget for your monthly loan payment.
As long as you meet the qualifications for a personal loan, like income and credit, you should be in the clear to be approved for a loan. Although there are many benefits, make sure that taking out a personal loan won’t plunge you into deeper debt. Also, make sure that you’ll be able to make the payments each month and make them on time. Happy borrowing!