Personal loans can be suitable for different kind of situations. Let’s begin with the straight definition of a personal loan. A few loans are booked for special purposes and purchase. You take a home loan to buy a house, an auto loan to buy a car and an education loan for higher studies.
Here, a personal loan can literally get you everything. Some lenders would want to understand what you would do with the money they’ve given to you, if your reasons are legit & responsible, you can do what you want with it.
So how to further break it down. What does it mean? When you take a home loan, the house can be kept as the collateral security, likewise when take a car loan, your car poses to be the security asset. This is so because a personal loan has no attached collateral, it is totally unsecure. So, if you’re looking at regular payments, then secured personal loans can substantially reduce your costs.
Here are 5 situations in which a personal loan might be the best decision ever:
1. Consolidate Existing Cards
If you have one credit card or more which have been consumed to the fullest. You can take an instant personal loan to consolidate all the charges at the same place. What makes all of it even more attractive: the interest rate which is relatively lower than the annual percentage rates on your credit card.
2. Refinance education Loans
Refinancing education loans can give you some financial freedom. The interest rate on an education loan could higher than a usual personal loan since it accepts deferred repayments. However, in this case a personal loan could be better in terms of offered rate of interest. This will allow quicker repayments of your loan amount.
What are the issues like?
Education loans come with tax advantages also.
A few suggest using a personal loan to pay off a major chunk of education loan. However, this will lead to loss of the interest portion eligible for tax exemption along with benefits of such as forbearance and deferment. Also, if the balance is heavy, a personal loan cannot make up for it. So, better plan to refinance your student loan before giving it a shot.
3. Finance your Purchases
Financing an asset/ item depends on whether it’s a necessity or mere indulgence. If you have a loan on mind already, then it’s better to take a full loan instead of filing through the seller. Avoid taking impromptu decisions about financing a purchase. Check with your seller for the offered deal and compare it with personal loan deals. After fair introspection, pick your right choice.
4. Reimburse for a Wedding
For sponsoring any of your big events like wedding, a personal loan can be helpful. What’s the point if you cannot pay up all the charges on your credit card within the stipulated period. However, this is possible only if the rate of interest available on the personal loan is better compatible than the on the credit card.
5. Enhance Your Credit
A personal loan can be broadly helpful in 3 ways. To start, if your credit report shows credit debt, then a personal loan decision can turn out fruitful. First, if your credit report shows mostly credit card debt, a personal loan might help your “account mix.” Having different types of loans is often favorable to your score. The best personal loans for bad credit are more limited in options but are still a better bet than payday loans.
Second, it may lower your credit utilization ratio—the amount of total credit you’re using compared to your credit limit. The lower the amount of your total credit you use, the better your score. Having a personal loan increases the total amount you have available to use.
And paying back the loan on time is, of course, always good for your credit score.
To sum up, a personal loan is helpful if used in the best of situations.