10 Possible Benefits of Obtaining Personal Loans

What Is a Personal Loan?

10 Benefits of Obtaining a Personal Loan

1. Higher Borrowing Limit Than Other Debt

2. Lower Interest Rates Than Credit Cards

3. Collateral Is Not Typically Required

4. Easy To Track and Manage

5. Predictable Repayment Schedule

6. Repayment Term Longer Compared to Other Loans

7. Building Credit History

8. Ease in Applying

9. Fixed Interest Rates

10. Personal Loans Can Be Used For Many Purposes

• Refinancing existing debt. Many borrowers take out debt consolidation loans to simplify their loan payments, ideally at a lower interest rate. The single loan is taken out to pay off existing debts and the borrower is left with paying back a single loan. Ideally, this personal loan will also have a lower monthly payment compared to the combined total of the debts you want to consolidate.
• Making major one-off purchases. A personal loan can be an option to pay for large purchases, such as a home renovation project or an emergency expense. It could even be used for something important for your health and well being, like financing the cost of a service dog. A personal loan tends to be a better option compared to other alternatives, especially if you have a high credit score (which can qualify you for lower rates) or you need to borrow more than your credit card limit.
• Making home improvements. Funding large home improvement projects using a personal loan can be a good idea, especially if completing renovations helps you to increase the value of your home. Home improvements may include home electrification projects, such as replacing your gas stove with an electric stove, or finishing your basement.
• Taking a vacation. Using a personal loan to pay for a vacation might be helpful if you want to make sure you don't mindlessly spend (like you might using credit cards). Getting a lump sum payment can help you prepay for certain expenses, such as hotels, attractions, meals, and souvenirs. 
• Buying land. Many lenders offer personal loans for land purchases. There may be requirements, such as restrictions on the planned use of the land that you finance. Some lenders even offer land loans to help you with land improvements, preparation, and home construction. 
• Paying for a wedding. Weddings can cost a pretty penny, and this major life event can take months of preparation. For instance, you may need to make multiple deposits months or a year in advance to secure your catering and venue. If you’re considering taking out a personal loan, try to come up with a realistic budget and get a loan amount for that size. 
• Paying for a major emergency expense. Life happens. Even with the best of intentions (and a rock-solid budget), you could face a huge financial obstacle, like an unexpected medical bill. In this case, you might consider taking out an emergency personal loan and stretching out your payments so you can afford it much easier than you would if you had to pay a lump sum. 
• Financing some types of training. Though you can’t usually use a personal loan to fund a college education (there are student loans for that), you can use personal loan funds for career development purposes. For instance, you may be able to borrow money to get a commercial driving license (CDL), certificate programs, and professional development courses.

Downsides of Personal Loans

• Interest rates and fees can be high. With a personal loan, you’ll typically have to pay an application fee and a loan origination fee. Interest rates may be higher than with secured types of financing, such as an auto loan or mortgage. 
• Debt-to-income ratio will increase. When you take on any new debt, including personal loans, your debt-to-income ratio increases. When that goes up, lenders may view you as a more risky borrower and it may prevent you from securing future financing until it goes back down.
• Can negatively impact credit score. In order to get a personal loan, lenders will conduct a hard credit inquiry on your credit history. This could temporarily lower your credit score. Also, if you miss a payment or go into default, your credit score could take an even bigger hit.

How to Decide If You Need a Personal Loan

• Do you need the money? If you’re planning on putting the money from the personal loan towards a necessary expense, such as an unexpected emergency, or using it to consolidate existing debt, a personal loan could be a good choice. On the other hand, if you plan on using it to pay for a vacation, you may be better off saving the money and delaying the trip until you can pay for it in cash.
• Is there a less expensive alternative? Perhaps a 0% introductory credit card would make more sense in your situation. Or, maybe a friend or family member is willing to lend you the money. Make sure to explore all of your options before deciding to go with a personal loan.
• Do you have a strong credit score? If you have a solid credit score, you’ll most likely qualify for the best rates and terms. If your credit score needs work, you may end up with a high interest rate, which could potentially make it not worth getting a personal loan.
• Can you afford to pay back the loan? Personal loans are typically paid back monthly over the course of a few years. Before agreeing to a personal loan, make sure you can afford the monthly payments without putting too much strain on your budget. 

Choosing the Right Personal Loan

• Types of loans offered
• Interest rate and terms
• Loan amounts available
• Fees
• Customer satisfaction
• Reputation of lender

Personal Loan Alternatives

Credit Cards

Overdraft

Borrowing From Friends and Family

Apply for a Personal Loan Now

The Takeaway