When is Getting Personal Loans a Good Idea?

Finding the right loans isn’t really the simplest thing in the world, but that doesn’t mean you give up. There are instances when you are in absolute need of it and there’s really no other way out. In times like that, you know what the best solution could be? You can look into going for a personal loan; it’s literally the most opted resort for most people.

What are personal loans?

There are just so many loans you can look into, all the way from guarantor loans to mortgage and personal loans depending on your requirements. Since personal loans is something most people opt to try out, it’s good to know what they exactly are, before making a decision.

Basically, personal loans are the kind of loans you use for your own personal uses. These are often kept under your discretion and can be used for things such as debt consolidation, unexpected expenses, home improvements, education etc. Since they come under the category of unsecured loans, you need to make sure your credit history is credible and up to the lenders mark. This is crucial because your credit history will basically tell your lender how well you’ll be able to repay the money.

When is it a good decision?

Personal loans are an excellent choice because it helps you keep up with your expenses without having to reveal the purpose of the loan. But the question still remains, when should you try getting a personal loan? Usually, ‘any-time you want’ sounds like a good enough answer, but that’s not always the case. Since loans are such an important and delicate situation to deal with, here are some things you should keep in mind beforehand:

     Consolidating credit cards

Credit cards are very convenient and actually work very well in maintaining your credit score. But sometimes, they can get you into a lot of trouble. Have you ever had to face a maxed out credit card? Well, let’s just say that it’s anything but fun! But that’s when personal loans can come in handy; they can really help you deal with paying back the debts. By reducing multiple monthly payments into one, it can severely decrease the interest rate and the burden of making heavy payments.

     Refinancing student loans

Student loans are quite difficult to manage especially when you’re struggling to find a job in the process. With high interest rate being applied to them, there’s really no questioning how troublesome they can get. In moments like these, you can simply apply for personal loans and help them pay off your debts. The major plus point about refinancing through personal loans is that they often have lesser interest applied to them so you’ll be reaping nothing but benefits! By using personal loans for repaying your student loans, you can benefit by:

  • Consolidating the student loans and having one payment per month
  • Having a fixed interest rate as well as a fixed repayment term. This is often regarded with utmost importance for most students
  • If you have a co-signer, then a personal loan can help you release them from your loan

Although this sounds like an excellent decision, but it’s best if you get expert financial advice before taking any steps. You don’t want to end up with any more troubles in your hands!

     Financing purchases

Unexpected expenses come up all the time. If you’re stuck with one and have no way to finance them, then it’s time you considered a personal loan. In cases like these, it’s important to keep in mind not to make the decision right then and there. Making a purchase through personal loans means you need to pay close attention to it and make sure you take the right steps. Remember not to:

  • Finance through the seller
  • Get multiple comparisons
  • Take your time deciding

These are very important because if you avoid any of them, then you’ll end up facing more trouble than you began with. Personal loans are often excellent choices as compared to other types of loans when you’re talking about purchasing unexpected items. The fixed interest rate is just a plus point in the end.

     Events and occasions

If an occasion is coming up and you’re running a little low on funds, then you can definitely consider getting a personal loan to help you. Major life events like weddings, graduation etc.. are often supposed to be celebrated lavishly but, sometimes, you just don’t have enough to do it. However, holding yourself back isn’t really going to help. With personal loans you can benefit from fixed interest rates and on top of not having to put collateral with it. It’s a win-win for everyone!

     Fixing your credit score

Bad credit score is a very common issue and it takes a lot of persistence to help fix it. One thing that helps is personal loans and it does this by:

  • Showing that you take up more than one type of loan. Yes, having an account mix actually helps to fix your credit score considerably.
  • It can lower the amount of total credits that you might use, which means it essentially decreases your credit utilization ratio.

It’s no wonder that personal loans are in such hype. The thing is, since they’re unsecured loans, no collateral plays a major role in attracting more people to use this.

Why all the hype?

Now that you know when you can go for an unsecured, personal loan, the next big question that people ask is why the hype about personal loans is created in the first place. Well, there’s more to it than just getting the funds that you were hoping for. Here’s a little briefing of everything you’ll benefit from with a personal loan:

Reason #1: Unsecured is good after all!

As mentioned before, personal loans are unsecured but what does that even mean? Well, it means there’s more good news for you! Opting for an unsecured loan means you don’t have to put up an asset as collateral. But that also means that you’ll have a little more difficult time trying to get the loan as usual. Being unsecured means you have to keep up a good credit history and prove to your lenders that you are financially mature and are able to manage your expenses and debts with excellence. However, if you have a good credit history, then you’ll really have no problem finding a good lender and dealing with the requirements.

Reason #2:  There’s always a limit, but this is great!

Personal loan lenders often put a very high limit to borrowing, and that’s one of the great things about it. Large limits means that you don’t have much to worry about, if you’re willing to get a loan for a very large expense. Of course, there is a criterion to meet here as well. To get a large personal loan, you need to make sure your income is enough to help you pay back the amount. Because there is no collateral, you need to show the lenders you are capable of paying back the amount you borrow which is why, depending on your income, you’ll be placed in the borrowing limit.

Note: You should also know that if you have any existing loans, those will also be counted in the amount you borrow.

Also keep in mind that some banks will also require your credit score, if you’re looking into borrowing a large amount of money. Regardless of your income, sometimes your credit score can do a lot to help the lenders figure out how much you’re eligible for.

Reason #3: Interest rates are really no problem!

Being an unsecured loan, they’ll have a higher interest rate as compared to secured loans. Usually secured loans make up the interest with the collateral that you place. However, in case of unsecured personal loans, you can benefit by having a fixed interest being applied to the money you borrow. As compared to other loans, fluctuating or constantly changing interest can cause a serious amount of trouble for the borrower, especially if you’re already under a little too much debt. With the case of a fixed interest, regardless of the amount that’s being applied to it, you can plan out your movements accordingly, without any surprises.

Reason #4: Repayment plans are all set out!

Personal loans make no room for surprises which means your lender will set out the period in which you have to repay the loan. These periods are often based on the months and, if your repayment period is longer, then it’ll greatly reduce the amount you’ll have to pay back monthly.

Note: The interest rate will sometimes depend on your repayment period. Shorter periods often have higher rates applied to them.

Keeping this in mind, it’s important you lay out all your plans beforehand, because once it’s done, there’s really no change made to it. This can also work perfectly in your favour because with unpredictable repayment plans, you’re stuck with having to keep up with the altering payments.

Reason #5: Monthly payments always make it easier!

Personal loans are often based on paybacks made on a monthly basis. This is also a part of the fixed repayment scheme and you have a certain amount tied to how much you can pay back per month. What this does is it takes the load off your shoulders and prevents you from working about making heft repayments all at once. How much you pay monthly will, again, be determined by your lender who will evaluate all your expenses, and so, move ahead accordingly.

Reason #6: Credit Scores will only get better!

Personal loans will not only help you with your expenses but also with finances. With their monthly payment scheme and also allowing you to borrow amounts to pay off debts with consolidation, it helps to greatly improve your credit score. It’s one of the most opted solutions when asked about bad credit scores and it really does wonders. By making sure you’re up to date with the monthly repayment option, you can always kick your credit score up a notch, and give your lenders the guarantee they’ve been wanting.

Should you really apply?

Now the real question comes if you should really apply for it. In a superficial way, everything you read might connect with you and opting for a personal loan might seem like the best option there is. But, you need to make sure you’re making the right decision instead of putting yourself in more trouble than you already are facing. The thing is, you should weigh out your options. While personal loans are excellent choices for most people, your financial standing will very much differ from theirs, which is why it’s important that you consult a professional before making any decisions.

Since there are so many types of loans you can opt for, it’s important to know your own position and financial maturity before you go about on a borrowing spree. Remember, expenses are everywhere and surprise expenses can pop up out of nowhere at any point in your life. That’s why you need to always be prepared and well researched. All you have to do is know what you’re looking for, and then place your needs in front of the lenders so they can help guide you through the necessary process.

Always be careful

Consulting a professional for your financial advices is important but knowing who to go to is even more necessary. Before consulting someone or making a decision about your loan, make sure you’re well researched and you trust the person you’re dealing with. Often what happens is that after knowing your need for a loan, con artists find you as the perfect victim. Needing a loan means you’re vulnerable and they can easily take advantage of your situation and scam you. That’s why it’s so important that you do your research and keep the contact details with you at all times. After all, when it comes to your finances, you can never be too careful!