Personal loans can be but a good option in almost all kinds of situations –financial downturns, or even when you’re embarking on a major financial journey. But first, what is a personal loan? Mostly, personal loans are made for a quite certain purpose — purchase something. Say for an instance, you purchase a house using a mortgage loan, you buy a car using an auto loan, and you pay school miscellaneous using a student loan.
However, with a personal loan, you can use your loaned amount for any kind of purpose. Some lending companies might ask you about the usage of money you lend, but as long your reason is valid and can guarantee the obligation, you can avail financial loan offers.
What are the different types of personal loans? A mortgage loan is usually a collateral loan in which your house is guaranteed. The same with an auto loan, your car is also in the terms of a collateral. Because personal loans are often offered as non-collateral and hence unsecured, they bear interest rates that are higher compared to collateral loans. But if you want a lower interest charge, there are also some lenders out there offering a collateral type of personal loans.
Here are the 5 situations in which a personal loan might be a good idea:
1| Consolidating Your Credit Cards
A credit card can be very convenient, but sometimes, it gets you into trouble especially when you face a max of charges. With a personal loan, you can consolidate all the debts into one monthly payment and reduce the burden of heavy payments. One good thing is that interest rate on your personal loan is quite lower than the percentage rate on your credit card.
2| Refinancing Your Student Loans
Student loans are usually applied with interest rates as high as 6.8%. But you might pay off your debts through refinancing them with personal loans. And what’s the most appealing, personal loans offer lower interest that might help you pay student debt faster. Hence, using personal loans to repay your student loans can be an advantage and can reap benefits of:
- Refinancing your student loans and having one monthly payment
- Availing fixed percentage rates and repayment terms
- Releasing your co-signer from your student loan.
This may sound like a good financing decision, but it’s recommended to get help from a financial adviser before engaging in this activity. You don’t want to involve in any trouble at the end tail.
3| Financing Your Purchases
Big expenses come unexpectedly. If you’re stuck in a thought of making a purchase because of no available cash, you can always opt to apply for a personal loan. However, purchasing through your personal loans means attentiveness to make the right decision. Consider to pay attention to the following situations:
- Financing directly through the seller
- Getting more after making comparisons
- Making informed decisions about the purchase
Personal loans are usually a good choice when you’re planning about making a purchase plus the fixed interest rates they offer.
4| Funding Events and Occasions
If special occasions come and you’re running out of budget, personal loans can be a big help for your expenses. With their fixed percentage rates and non-collateral earmarks, events such as weddings, graduations, and anniversaries can be celebrated without hassle.
5| Improving Your Credit Score
Personal loans can help improve your credit score in two ways:
- When credit card debts appear in your credit report, you can use personal loans for an account mix
- Consolidating credit cards can lower the amount of overall credit usage and this can decrease your credit utilization ratio. The lower the amount of overall credit usage, the more you can earn a good credit score.
Truly, personal loans can be very useful in various situations. But make sure that before taking the first step, consult with a reliable financial expert or do even a research to weigh your decisions.
The article was written and submitted for publication by Mike Amado of Monily Philippines (www.Monily.ph), a technology-based website that offers online loan calculators and comparisons, lender searches, and other services.