People should have emergency funds, but this is easier said than done. But even for those that do, it might not be enough to cover all the emergency expenses. So, what other financial options do you have when in such a situation? Taking a personal loan can prove to be a good choice.
Personal loans are unsecured loans offered by financial institutions. Opting for such a loan comes with several advantages, as explained below.
1. Builds Your Credit Score
When you take up a personal loan, you must make regular monthly repayments until you eventually clear the outstanding balance. If you are financially disciplined and you make timely payments, then you increase your credit score.
Lenders share your repayment records with the three major credit bureaus – Equifax, Experian, and TransUnion. The bureaus use this information to analyze your credit score. So it comes in handy the next time you apply for a loan.
If you default on the loan or make late payments, this affects your score, and getting credit in the future becomes more challenging for you.
2. It Gives the Freedom to Purchase Over Time
Lenders disburse personal loans as a lump sum giving you the freedom to make large purchases at once. This is unlike other types of loans where money is disbursed in stages, limiting you on its use or even paid directly, for example, in a car loan where money is paid directly to the seller.
3. You Can Use It to Consolidate Debts
You can streamline your finances by paying off all the other loans you have with a single personal loan that is easy to manage. In addition, chances of forgetting about repayments are minimal when you have one personal loan.
You can request your lender to directly consolidate your debts by paying off all the other existing loans; this saves you the hustle of doing it yourself.
4. Flexible Use
Personal loans do not lock you on how to use the money. Be it a home improvement, weddings, auto repair costs, and the like. Unlike other forms of loans like asset financing, where the funds’ uses are defined, its uses are not limited.
Other lenders put a cap on its use; it is advisable to shop for the right lender whose personal loan gives you the freedom on its use. Personal loans, like any other loans, cannot be used to fund illegalities.
5. Offer Competitive Rates
The annual percentage rates (APRs) for personal loans range from 3 percent to 36 percent, depending on the applicant. The rate that you qualify for will depend on the risk you pose to your lender. You will be eligible for a better rate if you have a good credit score and have a stable income.
The interest rates are often lower than that of credit cards. If you consider taking a personal loan, prequalify with top lenders to see what interest rate they will likely give you.
6. Flexible Borrowing Limits
The borrowing limits vary by lender though they can tailor it to meet the requirements of the borrower. Because of the risk factors involved, the more the amount, the challenging it will become to get the loan. The loan limit is often higher compared to that of credit cards.
7. No Need For Collateral
It is not a requirement for collateral when applying for most personal loans. Therefore, you don’t have the risk of losing your asset if you default payment. However, you should know that the interest rates charged for personal loans are higher than secured loans.
Because collateral is not a requirement, it is hard to qualify for such a loan. Banks do proper due diligence before your loan is approved. With a bad credit rating, it is hard to qualify for a personal loan bad credit no guarantor UK.
8. Provide Fast Access to Cash
The personal loan approval and disbursement process are always fast. In addition, most lenders advertise for same-day funding. It plays to your advantage as you will have cash the soonest.
However, the turnaround time might vary depending on the size of the loan and your credit score. Research the entire loan application and approval process to know the exact time the banks will disburse.
9. Flat Repayment
Once approved and disbursed, you will tell the exact amount that you will be required to pay monthly. It helps you to budget and helps you make timely repayments to avoid having a bad credit score.
10. Less Documentation and Paperwork
Unlike other types of loans, such as a home loan or car loan, the documentation requirement is far less. It is one of the reasons why its processing time is shorter.
These advantages, among many others, make personal loans a viable option for getting money. First, shop and compare the other available options before deciding which loan to take. Then, go for the most affordable option that meets your needs.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.