Short of cash? Top Reasons Why Taking out a Personal Loan Could Provide Financial Flexibility
In reality when it comes to money, people are sometimes strapped down on what they can spend. Life’s expenses start to creep up and we feel the burden of not being able to spend on all the experiences we want. This is when a personal loan can be a good solution in order to keep moving forward.
What is a personal loan?
A personal loan is a type of loan that involves borrowing a set amount of money and paying the creditor off with interest in a structured payoff schedule. These loans are “unsecured” because you don’t have to put up any collateral (such as your house, car, etc.) to get the loan; instead, lenders use your personal credit and other factors to determine eligibility. The concept is simple and similar to the “borrow and pay back” method. A personal loan also gives you more flexibility on what you can use the money for.
Top 8 Situations Where a Personal Loan Can Help:
1. Consolidate Debt
The most popular use of a personal loan is to combine other debts, such as car loans, credit cards and payday loans, into just 1 loan with a fixed rate, fixed monthly payment and closed-end term. The objectives are to save money and/or restructure the financing.
2. Improve Credit
It’s funny to think that taking out a loan can actually help improve your credit score. When credit bureaus calculate your credit score they keep an eye out for a combination of revolving credit lines like credit cards and installment loans. Taking a personal loan and repaying completely and in time will help to raise your credit score. Additionally, when you take out a loan, make monthly payments and stretch it for at least 6 months to a year before it is completely repaid in order to establish a payment history.
3. Finance a Home Remodeling Project
Personal loans can be a perfect solution for a home improvement project. Whether you want to put on a new roof, install solar panels, remodel your kitchen or add a swimming pool, hot tub, landscaping or hardscaping, a personal loan can help. There is no equity required to qualify for a personal loan, and you can apply from the comfort of your own home and receive your funds in as little as a week.
4. Pay for a Wedding
Many people, especially women, want their wedding day to be a memorable one, but as we all know, weddings aren’t cheap! The average wedding in 2015 cost $32,641! Personal loans have solved that problem for many couples. Some people take out a personal loan to cover not just the wedding ceremony, but the engagement party and the honeymoon as well. While some others only need it to pay for the big expenditures such as the venue, the bride’s dress, the wedding coordinator etc. Having a good payment plan in place prior to taking out the loan is important.
5. Pay off Credit Card Debt
This is arguably the best reason for taking out a personal loan. You may not have a lot of different sources of debt, but even if you have one credit card debt, it can be worth considering. Credit cards often carry high interest rates that you could potentially avoid by exploring the possibility of a personal loan. Taking out a loan to pay off a credit card can be a smart way to keep a little more of the money you earn for yourself.
6. Medical Expenses
A medical emergency isn’t the ideal scenario, but you realize you don’t quite have the money available to pay for it. This is a situation where taking out a personal loan can prove beneficial, since you can borrow what you need and select a payoff structure that works with your budget. Instead of waiting until there is an emergency travel, medical or any other type of emergency expense, consider taking out a personal loan that gives you enough time to repay while establishing your savings.
7. Pay for Moving Expenses
Local moves generally aren’t costly, but a major long-distance relocation, perhaps for a job opportunity, can be expensive enough to need a personal loan. The funds can pay for moving household belongings, buying furniture for a new residence, transporting a car across the country and more. Not many companies today are paying for people to relocate.
8. Take a Dream Vacation
We all need a break from time to time but we know that a vacation can cost a little more than we’d like to spend sometimes. A personal loan can be a good way to finance your vacation, so that you can pay it off over time. Taking that luxurious cruise may seem more attainable now.
How can I get a personal loan?
Getting a personal loan requires six steps, including checking your credit, getting pre-qualified, shopping for the best rate and comparing offers with other options. Most personal loans are unsecured, meaning they don’t require collateral such as a house or car. Loan amounts range from $1,000 to more than $50,000 and are paid back in fixed monthly payments, typically over two to five years.
Borrowers with good to excellent credit can choose among a variety of lenders, and will likely snag the most affordable interest rates. Options shrink and payments increase if you have no credit history or bad credit.
Here’s how to get a personal loan, step by step:
1. Check your credit score
A strong credit score boosts your chances of qualifying for a personal loan and getting a lower interest rate.
720 and higher: Excellent credit
690-719: Good credit
630-689: Fair or average credit
300-629: Bad credit
2. Get pre-qualified for a loan
Visit online lenders or a personal finance site like LendingTree to pre-qualify for a loan. Many lenders perform a soft credit check during pre-qualification that doesn’t affect your credit score.
3. Shop around for personal loans
With your pre-qualified online offers in hand, compare the amounts, monthly payments and interest rates. It’s also recommended to shop for loans from a local credit union or bank.
4. Compare your offers with other credit options
Before you choose a personal loan:
- See if you qualify for a 0% credit card
- Consider a secured loan if you have bad credit (you may get a better interest rate)
- Add a co-signer (a co-sign personal loan may be an option for borrowers who don’t qualify for a loan on their own)
5. Read the fine print
As with any financing, read the terms of the loan offers and get answers to your questions.
6. Final approval
Once you’ve selected a lender that matches your needs, you’ll need to provide additional documentation such as identification, verification of address, and proof of income.
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All In All…
Taking out a personal loan can help you relieve your debt load and cover unexpected costs, but remember to research your options before settling on one choice. Find the lowest rates, borrow only what you need and repay the debt on time.