A personal loan is also known as an unsecured loan because it is not backed by collateral like an auto loan or house loan. Instead, a bank will use your credit score to determine whether or not you qualify for the loan and at what interest rate. While you do need a decent credit score to obtain one (bad credit loans are readily available), there are many advantages to personal loans.
Understanding the Advantages of Personal Loans
There are several advantages of applying for and utilizing a personal loan, from consolidating credit card debt, to lower interest rates, and even flexibility.
Here are six of the top reasons:
1. Consolidating Credit Card Debt
Many people in the United States have some amount of credit card debt. In fact, some have quite a lot and use credit cards as their go-to source when they need money. The issue is that the interest rates associated with credit cards are very high.
In addition, credit cards can have variable interest rates and the card issuer can change not only your interest rate but also your minimum monthly payment.
Personal loans, on the other hand, have a fixed interest rate and a stable monthly payment, so there are never any surprises. Also, the interest rates for a personal loan are much lower than for credit cards. That means you can consolidate all of your credit card debt into a personal loan and pay it off faster and for less money.
2. Flexibility – More Spending Options
Many credit cards are for a specific store or service. That means you can only use them at the store that has issued the card, but with a personal loan, you can use the money anywhere including stores or services that do not accept credit cards. Also, you can take advantage of cash discounts offered by many retailers.
3. Improve Your Credit Score
There are many things that go into a good credit score, but one of them is having several different types of credit. In fact, ten percent of your score is determined by the types of credit you have. Credit cards are considered revolving debt. A personal loan, however, is considered an installment loan. By adding this new type of debt, your credit score can increase.
4. Quick Turnaround Time
Often times life can blindside you and you find yourself in a situation where you need money in a hurry. Too often, people will turn to payday loans or car title loans to get the cash they need to deal with an emergency. While one of the attractions of these types of loans is that you can obtain one quickly, they come with extremely high-interest rates. Be careful!
Instead of falling into a revolving nightmare of debt to one of these types of predatory lenders, a personal loan is the better choice, and you can obtain a personal loan quickly as well. In some cases, you can receive an approval in as little as twenty-four hours.
5. Lower Interest Rates
The interest rate you receive for your personal loan depends on your current credit rate. For those with the very best credit scores, you can expect to receive an interest rate as low as six to seven percent. Even for those without the highest credit scores can expect rates lower than credit cards with an average rate of nine percent.
6. No Red Tape
If you have ever tried to secure a home loan or auto loan then you know just how much paperwork is involved. Besides all the documents you must sign, you also need to provide all sorts of documents as well. With a personal loan, there is very little documentation needed as there is nothing securing the loan. This also is why you can be approved quickly.
There are many reasons you may need money, from emergencies to vacations or even home remodeling. With personal loans, you can receive the money you need quickly and not have to break the bank to pay it back. Finally, bad credit loans, when paid back promptly and on schedule, give you the chance to improve you credit score and overall financial health.
This information was brought to you by BetterLoanChoice
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