When Are Personal Loans Ideal?
A personal loan is a type of loan that can be used for any purpose, we will let you know when personal loans are a good idea. There are some loans meant for specific purposes. For example, a student loan is meant for paying the tuition fees, a mortgage loan is for buying a home, and an auto loan is meant for buying a car.
There are times when taking out a personal loan might not be ideal and there are times when it might be just the smart thing to get.
Despite the fact that personal loans are meant for any purpose, some lenders might still ask what the loan is going to be used for. However, as long as you are using the money for something legal and responsible, you can still use a personal loan for whatever purpose.
I will be highlighting a few circumstances in which a personal loan can be an ideal option.
Consolidate credit cards
You can get a personal loan to consolidate the debts on more than one credit card charged to the max into one monthly payment. The interest rate on this type of loan is lower than the Annual Percentage Rates (APR) that you have on your credit cards.
Refinance student loans
Refinancing a student loan is a way to ease things financially. The interest rate can be as high as 6.8 or more, depending on your lender and the type of loan. You might also be able to get a personal loan at a lower APR that will allow you to pay off your loans faster.
You can use a personal loan to pay off all or part of your student loan but you will forfeit the opportunity of deducting your interest payments (if you file your income taxes) together with the benefits that are attached to some loans such as deferment and forbearance. However, if your balance is sizable, a personal loan might not cover all. You have to consider all these things to know whether it will be good for you to refinance your student loans.
Finance a purchase
Whether you should finance a purchase or not depends on if the purchase is a need or a want. For example, if you want to get a loan to buy an item, you need to decide whether you are going to pay the seller in cash or finance the purchase through the seller or via a high-interest credit card. You need to know which of these options will be a better deal for you. Request for an offer from the seller and compare it with what you will get if you decide to take out a personal loan.
Pay for a wedding
Events such as footing the bills of a wedding also qualify as long as you will end up putting all the charges involved on your credit card without paying them off in a month. Going for a personal loan in the case of a big event like this is a good idea as it will save you a reasonable amount on interest rate charges. But the interest rate must be lower than the rate on your credit card.
Improve your credit
There are three ways in which a personal loan might help your credit score. First, if your credit report shows that you have more credit card debt, then a personal loan might help your score. If you have different types of loans will also help your credit.
Second, improving your credit will also reduce your credit utilization ratio. The credit utilization ratio is the amount of total credit you have compared to your credit limit. The lowers your credit amount, the better your credit score.
Also, prompt payment of your loan will also go a long way in boosting your credit score.
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