The option to take a personal loan is ideal when you are consolidating debt or looking to finance a big expense like home improvement. The interest rate applied on personal loans are typically lower than credit cards for borrowers with a decent credit score. Most of the personal loans do not require a collateral, meaning they are unsecured but it subjects on the terms of the lender.
How personal loans work?
To define a personal loan in plain words, it is the type of credit a consumer takes for a number of different personal reasons. It’s not like an auto loan or a mortgage which is required for a specific purpose. You are basically allowed to use for almost any reason you like.
A personal loan work on the installment basis. If you are approved for a loan, then you will receive sums of cash amount that you would repay on monthly installment basis until the term of the loan expires. In order to see if you are qualified for a personal loan, a lender usually checks your credit score and income level to find out if you are able to afford the loan. So in that regard, a borrower with a higher credit score have lowest installment rates. The minimum credit score to qualify for a personal loan lies in 610 to 640.
When to get a personal loan?
A personal loan is more suitable when it is less expensive than other type of credit that you may have and when you are able to comfortably afford the monthly payments for the long term duration of the repayment schedule.
The common reasons to take a personal loan is
High Interest Debt Consolidation
A way to consolidate high interest debt is taking a personal loan, a type of high interest debt could be a credit card debt. Most of the time, a personal loan has lower interest rate than your existing credit card debt, which allows you to pay it off faster.
Another good way to use a personal loan is for a home improvement project if it adds value to your house. By taking a route of a personal loan you won’t be burdened with a credit card debt or in the worst scenario to pledge your home as an asset as you have to do with a home equity loan.
Should you take a personal loan?
If you are looking to take a personal loan, then idea behind it is to take yourself further to achieve your financial goal rather than set you back. It is always recommended to calculate your monthly payments for a personal loan to ensure you can fit them into your budget.
In essence, if you can save your money instead of taking a personal loan, do so. Look into the long term planning of your future and set today’s priorities. In this way, you can set yourself for a lasting and debt-free wealth for yourself and family