Things You Need to Know Before Getting a Personal Loan
Getting a personal loan is faster and easier than most other forms of lending.
You can be approved for the best personal loan with great rates in a matter of minutes and receive the funds within a few days. It’s simpler than taking out an equity line of credit on your home or refinancing your mortgage and it doesn’t require you to use a property as collateral. Personal loans are offered by many different types of lending institutions, from banks and credit unions to direct lenders and finance start-ups.
Using a personal loan to consolidate higher interest debts can help you in more ways than one.
It’s obviously beneficial to pay less interest as you pay off your debts, but consolidation can also help your credit scores by lowering the amount of credit you’re utilizing. Revolving debts, like credit cards, have maximum amounts you can carry. If you’re using more than 30 to 35% of your available credit, then your credit scores could be negatively affected. Personal loans are almost exclusively installment loans, and they don’t have the same impact on your credit utilization percentage. In fact, they can even have a positive effect on your credit by adding to your “credit mix”. According to the Fair Issac Corporation (FICO), showing that you can successfully manage different types of debt can actually improve your credit scores.
A personal loan won’t solve all your financial issues though.
If you don’t change your spending habits and behaviors that led you to incur credit card debt, then the benefits of using a personal loan will only last as long as your resolve not to make new purchases or charges. Paying off your debts with a personal loan doesn’t mean you’re required to close those lines of credit down. This leaves you open to the significant risk of charging those balances up again while still having to make your personal loan payments.
Unplanned expenses can be managed more easily with a personal loan.
Unforeseen circumstances could leave you with a large bill for medical expenses, auto or home repairs, or an emergency purchase (like a new furnace in December, or air conditioner in July). Rather than depleting your cash reserves or turning to credit cards, a personal loan can help your budget to absorb this expense. Spreading out the financial impact of an unplanned expense can help keep your budget intact through a difficult time.
Planned expenses can also be managed more easily with a personal loan.
If you’re planning for an upcoming expense, but time is of the essence, then a personal loan can be a useful financial tool that lets your schedule and your budget work together. Using personal loan funds for a wedding, adopting a child, or taking the vacation of a lifetime can enable you to do things when you’re ready instead of once you’ve saved up every penny.