by Ed Seycota
Some people consider personal loans frivolous. It is one thing to get a mortgage for a house or an auto loan for a new car. It is a different problem to enter debt only to enjoy an exotic vacation for a week. However, personal loans have become a critical financial tool for people coming from all walks of life. If you strategize correctly on a personal loan, it can make your life easier. No Sword of Debt over your head! So, let’s learn more today about personal loans and how to use them to your advantage.
When Do You Need a Personal Loan?
Personal loans are unsecured loans. They need no collateral like assets, cars, your home, and so on. They do not come earmarked for a precise type of purchase (like mortgage, auto loans, or student loans). Many lenders and banks don’t even want to know what you intend to do with the money. As long as you qualify for the particular loan and abide the law, you are alright.
Personal loans are useful when you need large sums of money for significant expenditures:
- home improvement/remodeling projects,
- extended medical bills,
- a wedding or (worse) a funeral,
- an expensive trip,
- moving to another city,
- the emergency purchase/replacement of major household appliances and electronics,
- or the acquisition of a vehicle.
Personal Loan vs. Payday Loan
When you need money for an unforeseen and rather significant expense, you may have to choose between the two. Each comes with advantages and downsides. We will discuss them so you can make an informed choice.
A personal loan differs from a payday loan in many ways. Both are easy and unsecured financial tools you can use depending on the situation.
- A payday loan means access to quick money you can use to solve a crisis.
- When it comes to a payday loan, you can borrow money online that you typically must pay back at your next salary in 3-4 installments, depending on your agreement with the lender. The sooner you give them back, the lower your interest rates.
- Some banks and credit unions allow you to apply online for a personal loan as well, but you still need to go through the motions with a lender’s representative.
- The available sums are lower than those accessible through personal loans, with higher fees.
In comparison with payday loans, personal loans take longer for approval. In other words, if your car or fridge broke and you need to fix things in an instant, a payday loan is your go-to solution.
Here are some examples that warrant a payday loan rather than a personal one:
- funeral expenses,
- home accidents,
- urgent medical bills,
- severe household appliances/electronics’ malfunctions.
You could use your credit card for such expenses. If you have a poor credit history, your credit card company may not help you as you expect.
- Personal loans can become strategic for your financial future, and this is the topic we will focus on next.
Personal Loans as Critical Tools for Your Financial Stability
Besides allowing you to make a wide variety of purchases for needs or leisure, personal loans can also build the foundation of a more secure financial life when managed correctly. Here is how!
The carrying of multiple loans/credit card debts is the recipe for financial disaster. The surefire way to achieve financial balance is to apply for a personal loan. It helps consolidate all those debts into a single monthly payment at a reasonable interest rate.
The mechanism is simple. You borrow the amount of money you owe on your credit cards and other loans. If your lender approves the sum, you can start paying your debts from the loan fund. The interest of the personal loan is lower than what you need to spend on other loans and credit cards. It means you can save big money. Use it to pay your debts in a clear, timely, and straightforward manner.
Similarly, you can use a personal loan to refinance an older loan with a higher interest rate. With personal loans you can get out of pressing debt, as counterintuitive as it may seem.
Improving Your Credit Score
Again, getting into debt to improve your credit score sounds a bit paradoxical until you stop and do the math. Consider this as an investment. You don’t need a personal loan; you just take one to secure your financial future. Here is how investing in a small personal loan can boost your credit score and bring you advantages:
- It helps with your “account mix.” If you only have credit cards, a personal loan might improve on your credit portfolio. Having multiple types of loans is favorable to your score. It matters when you want an extensive home mortgage loan or a bigger personal loan in the future.
- Let’s say you take an average personal loan for two years. Apply this case study to your situation: put the money in a separate account, so you don’t touch it. Pay only the interest on this loan on time for two years. Check your (now higher) credit score after that period. You will see banks trusting you more with bigger lends, better credit cards, and more available financing tools.
- Having a personal loan that you pay on time improves your credit score. It increases your total amount of credit you have available to use.
If you take a personal loan as an investment in better credit scores, make sure you pay it on time.
Boosting Your Property’s Curb Appeal
As we said at the beginning, many people take personal loans for home improvement projects. House remodeling is necessary to improve your comfort and living conditions. Many access such loans as a form of investment when they want better property curb appeals.
The mechanism is simple: you take the loan, invest in infrastructure, design, landscape, appliances, etc. with the sole purpose of seeing a fast and significant ROI in the form of rent or selling. Monthly high rents or a high selling price for the house can cover your monthly loan payments. They can generate quite a profit.
Take money to make money is not a new thing. Especially in the real estate industry. Most homeowners consider personal loans as the stepping-stone for increasing their property’s curb appeal.
Did you consider a personal loan as a financial tool, critical for a secure lifestyle? Did you take one as an investment, not because you needed to buy something?