Utilizing Loans: When Personal Loans are Good
If you’re considering a loan to consolidate debt, manage unexpected expenses, or other reasons, a personal loan may be the best option. Curious when its best to use a personal loan? Here are some good reasons for using personal loans.
- Consolidate Credit Cards
If you have one or more credit cards that are charge a high interest rate, you can consider a personal loan to consolidate the payments into one lower monthly payment.
- Refinance Student Loans
Your student loan interest rate may be 6% or higher, but if you are able to get a personal loan with a lower interest rate, you can pay off your loan faster. However, remember to weigh the benefits of your loan options. Usually, student loans from the government gives you the ability to deduct your interest on your income taxes and have other benefits, such as forbearance and deferment.
- Finance a Purchase or Cover Expenses
If you’re going to take out a loan to finance a purchase such as home repairs, medical bills, moving expenses, taxes due, or wedding expenses, getting a personal loan and directly paying the seller in cash might be a better deal than financing options with the seller.
- Improve Your Credit
A personal loan could help your credit score in a couple ways: 1. It could add to the mix of types of credit you have (in addition to revolving credit like credit cards) or 2. it may lower your credit utilization ratio—the amount of the total credit you’re using versus the amount of credit you can use.
While there are a number of good reasons for using personal loans, it is important to consider both the pros and cons of personal loans before you apply for one.
Pros – Personal loans can:
- Enable you make large purchases
- Help you to build a good credit history over time
- Have lower interest rates than credit cards
- Be a good way to consolidate high-interest loans
Cons – Personal loans can also:
- Negatively affect your credit if you miss payments
- Go into collections if you cannot stay caught on payments
- Ultimately decrease your credit score if you fall behind
Before you take out a personal loan, make sure you weigh your options and ensure it is the best decision. You can go into a bank or utilize online lenders, such as Zippyloan, when you know you’re ready for a personal loan.