Most loans are meant to be used for a specific purpose—a mortgage loan to buy a home, a student loan to pay for college, and an auto loan to purchase a car. On the other hand, a personal loan can be utilized for anything, due to which this type of loan is mostly unsecured.
While some lenders may ask you to specify why you’ve taken a personal loan, most don’t ask for this information as long you’ve taken the funds for a legal and responsible reason. Taking a personal loan is a good idea if you want to:
Improve Your Credit
If your credit report is bogged down by credit card debt, taking a personal loan can help change things because having different types of loans helps your score. Moreover, having a personal loan can also lower your credit utilization ratio (the amount of credit you’re using out of the available credit). Your score will be better if the total amount of credit available to you is low. Repaying the loan on time also boosts your score.
Consolidate Credit Cards
If you have debt on several credit cards, you could consolidate all the charges into a single monthly payment by taking out a personal loan. Additionally, the interest you get on this debt could be lower than the annual percentage rates (APRs) on your credit cards.
Finance A Purchase
Using a personal loan to finance a purchase depends on whether the product is a want or a need. If you plan to take out a personal loan regardless of the purchase, paying the seller using the cash from the loan may be a better idea than financing through the seller or a high-interest credit card. However, decide about financing only after asking the seller for an offer and comparing it to what advantages the personal loan presents.
Pay For A Wedding
If you know you won’t be able to pay off the charges on your credit card for a large event, like a wedding, within a month, a personal loan could be your savior. Taking out a personal loan for such an event can help you save money on interest charges if the loan has a lower interest rate than the credit card.
In addition to these, using a personal loan to refinance a student loan is also a good idea.
