Did you know that the average American carries almost $100,000 in debt? Credit card debt, student loan debt, mortgages, car payments, and various other types of debt, can get overwhelming fast.
If you have debt or you want to simply reorganize your financial situation, then you may be interested in a personal loan. You can get this type of flexible funding through your bank or another financial institution, similar to an auto loan or a mortgage.
Would you like to learn more about getting a personal loan? Here are some of the advantages of this type of loan, and how you can use it to get aspects of your financial life squared away.
1. Get a Lower Interest Rate
According to Business Insider, the average interest rate of personal loans in 2020 was just under 10 percent. Whether you’re using a personal loan for debt consolidation or emergency expenses, you will want a lower interest rate.
Credit cards, meanwhile, carry an interest rate that is much higher. Most credit cards have compounding interest rates of around 25 percent. By getting a personal loan, you will no doubt save money in the long run and avoid hefty interest payments.
If you use a personal loan to pay off a higher interest loan, make sure to look at the terms of your old loan. You may get penalized for making a prepayment of the full amount due. If not, then you should definitely use a personal loan to pay off that debt and save money.
2. Consolidate Your Debt
Many borrowers have multiple forms of debt, especially credit card debt. Obtaining a personal loan may be a good option if you want to get serious about paying off your debts more quickly.
When you consolidate your debt, you will have all of your loans under the umbrella of one monthly payment. That way, you don’t have to worry about scheduling payments or keeping track of which payments you have made every month.
Additionally, by paying off your other debts and taking out a personal loan, you can avoid different interest rates. Debt consolidation means one interest rate to worry about with your personal loan.
3. Funding for Big Projects
If you want to update your home or have another large project, a personal loan may be the best option for you. It is a good idea if you recently purchased a home and still have not built up equity on your home yet.
One common reason people get personal loans is to finance appliance upgrades. You can get something brand new, and not have to use your credit card with a much higher interest rate.
A benefit of a personal loan for home renovations is that you will have a fixed payment every month. You can work this payment into your monthly budget without worrying about unforeseen expenses coming your way.
Before looking into a personal loan for your home project, remember to get an estimate of how much the renovation will cost. That way, you will not borrow more than you need.
4. Stay Away From Payday Loans
Payday loans are extremely predatory, so you should avoid getting them if possible. They often come with high-interest rates that will leave you paying much more than what you borrowed when you took out the loan.
Many people who use payday loans often get trapped in a payday loan cycle. They get enough money to take them until payday, pay back the loan, and end up needing to borrow more later.
Payday loans also do not have to report to any credit agencies. If you take out a payday loan and make regular payments, you will not see an increase in your credit score like you do with a personal loan.
If you struggle to make it to payday, then a personal loan can help you get back on your feet without predatory lending. You can take longer to pay back the loan in monthly installments and avoid the payday loan cycle.
5. Improve Your Credit Score
If you want to raise your credit score, you might be able to accomplish it by taking out a personal loan. Your credit score should stay the same or improve if you make regular monthly loan payments.
You may be worried about getting a personal loan because you do not have any credit history. If you do not have emergency expenses that you need the loan money for, you should consider a credit-builder loan.
A credit builder loan is when you make payments towards the amount you want to borrow before you get the money. You can establish a history of on-time payments, build credit, and improve your credit score.
Whether you do a traditional personal loan or a credit builder loan, you should make sure you make regular monthly payments. This will be the biggest factor in increasing your credit score, as long as you make the minimum payment required.
6. Finance a New Car
Even though an auto loan is the most popular choice when financing a vehicle, it might not be the best option for you. Many banks require a down payment for a car loan, as well as limitations on what you can use the funds for.
A financial institution might set rules on purchasing a car that is relatively new, so you would not be able to use the money to buy an older vehicle. This can limit your choices when it comes to the car that you want.
However, a personal loan can give you much more say in how you spend the money. For instance, if you take out a personal loan from a company like Plenti, you can get a lower interest rate and still have flexible options for how much you borrow.
7. A Solid Plan for Loan Repayment
When you take out a personal loan, you will make the same payment every month. This will help with budgeting, as you will not have to worry about how much will be taken out of your checking account for the payment.
Your loan period varies depending on your credit score, how much you borrow, and the interest rate. Generally, it is a good idea to make a payment that is as comfortable as you can afford, with some funds left over in case of an unexpected cost.
8. Get Emergency Cash
About one in four Americans do not have any sort of emergency savings in the event of a disaster. A key benefit of a personal loan is that you can use the money for emergency expenses.
Although medical credit programs may seem appealing, they often carry the same higher interest rates as credit cards. You will end up paying a lot of money in interest based on the expenses you charge to the card.
With a personal loan, you are almost guaranteed a lower interest rate for any type of necessary expenses. That way, you can focus on the problem at hand and deal with it, without worrying about how you will pay back the money.
9. An Alternative to Credit Cards
Credit cards are a popular choice for financing because they are easy to use and often do not require a good credit history. However, credit card companies are extremely predatory and will charge high-interest rates on balances not paid in full.
Many credit card users have issues with debt because they do not realize how much they have spent. Then, when they are unable to pay it back within a month, the credit card company tacks huge amounts of interest.
When you take out a personal loan, it is a fixed amount that you cannot keep drawing from. Therefore, you will not risk overspending like you would with a credit card.
10. Pay for a Wedding or Honeymoon
Weddings are growing more and more expensive, so borrowing money to pay for the big day is a popular option. However, using credit cards can be a recipe for disaster when considering increased interest rates and the potential to overspend.
Taking out a personal loan also helps you and your future spouse work within a budget. When you only have a fixed amount to spend, you will not accidentally pay too much. You can be much more mindful of costs and reduce your expenses.
If you keep your wedding small, consider using a personal loan to pay for your honeymoon. You can plan your entire trip around the loan amount and have a great time, without worrying about how to pay the bill.
Secure Flexible Funding With a Personal Loan
You should not have to turn to higher interest rates or poverty when you need flexible funding for any reason. With these advantages, you should consider a personal loan as a viable option.
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