Originally posted on https://www.arcct.com/best-uses-for-personal-loans.html
Despite common opinion about being in a bad personal finance realm when you are in debt or have a mortgage on your house, getting loans does not imply a reckless way of living. Many people who are responsible, rational, mature and cautious (basically opposites of thoughtless people) are using the benefits of various loans for purchasing dreams they thought will never come true. Buying a house, remodeling a kitchen, enrolling in the best university or paying for a dreamlike car all those bucket list items become reality with opting for getting a loan.
Special type of loans also referred to a bad credit loans and other similar terms, which many people are familiar with but not so many use it, are personal loans even though their popularity is now growing according to the latest researches. Actually by the end of 2018 they became the fastest growing type of loans in the USA, surpassing credit cards, mortgage balances, auto loans and student loan. They are the best solution for somebody who suddenly finds himself in a financial need he did not anticipate.
What is a personal loan?
- A personal loan is an unsecured loan which means it is not backed by any collateral or guarantee. If you ever took an auto loan or home equity loan from a bank, you probably had to offer something to them as a warranty you will return all the money including interest. Collateral in this case meant you house, car, savings from a certificate of deposit or anything valuable enough they accepted it in order to provide you with cash. This is not a case with personal loans making them more flexible and easy to take.
- A personal loan is a type of a loan with monthly installment payments which means you repay it over time with a number of scheduled payments. Usually it is between two and five years but it can span from a few months to a several years (seven or up). Every month during that period of time you will be regularly charged with a fixed amount of money.
- A personal loan is a general purpose loan which means you can use the funds how you like, whatever you like for. It enables the use of the money according to the clients’ needs and wishes. Whether you want to pay off your credit cards or revolutionize your garage door system, you don’t need to specify the purpose of taking the personal lien.
Those are some of the main characteristics of these type of loans but there are several other advantages you can also take into consideration when contemplating about your financial possibilities. If you have a fixed amount you need and you plan to pay it off in the next few years, but don’t want to put use your valuable assets as collateral, than consider getting a personal loan for your needs. While a personal loan is usually a set monthly payment other types like an installment loan might work better. You can read more into what is an installment loan here. You may even be able to qualify for a low-interest rate depending on your credit score, credit history and the desire length of your payment.
So why you should prefer personal loans over other alternatives?
- FIXED INTEREST RATES
Interest rates for personal loans are usually fixed for the entire length of the loan. You will not be charged more after some time like some loans where interest rate changes periodically. That also implies you can easily organize and coordinate your budget for a loan payment as there are no fluctuations of interest rates.
- LOWER INTEREST RATES
Generally, if your credit score is good enough you can be entitled for a lower interest rate. Personal loans usually start at 5% or 6% Annual Percentage Rate (APR) for very well-competent borrowers. Some lenders will even grant you a loan even tough your credit score is low but you will have to pay a higher interest rates which still are lower than other loan options.
- LONGER REPAYMENT TERM
Imagine you can have seven or more years for a repayment of your loan. This releases a lot of stress out of your life while making your dream come true. You can have your dreamy wedding day with the absence of post-wedding financial crisis. You can enjoy in your renovated bathroom or living room without secretly despising your new home design because it reminds you of your balance. You can take a trip to your ideal destination without having headaches during the sleepless nights. Furthermore personal loans are a great financial source for people who suddenly ended up in a serious situations that require paying high medical bills or an extensive car repairing.
- DEBT CONSOLIDATION
If you are not familiar with the term, to consolidate the debt means to take out one loan to refinance the other ones. It’s a process of combining multiple loans into a single one and usually at a lower interest rates. With a debt consolidated you can easily manage all your financial activities at a lower payment charges. Also, as the personal loans are fixed, you know exactly how much money will be withdrawn from your income which gives you a clear perception on how much money you have left with for other every day expenses. You apply for a single personal loan, use that money to pay off your credit cards immediately then make fixed monthly repayments until the end of your loan.
Still not convinced you should apply for a personal loan? Don’t think of it as just another loan. Consider it as a smart financial tool that is easy to handle, comes with many advantages and helps you to take control over your life again. With so many on-going costs (living, education, car, repairs, home improvements) but also unexpected situations like weddings or medical bills, it is normal to be under a lot of pressure and feel like you are constantly trying to keep your head above the water. This type of a loan assists you to finally reach the shore and start making your way toward a financial freedom.
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