Most people think of personal loans as a last resort, something you only consider when you don’t have savings or a credit card won’t cover an unexpected expense However, personal loans come with several advantages you may not be aware of. Here are eight surprising benefits of taking out a personal loan.
You Can Use a Personal Loan for Just About Anything
One of the most surprising advantages of personal loans is that you can use them for almost anything. While you will need to provide a general loan purpose when applying, this can be for a vast array of life moments. Whether you’re looking to merge debt, fund a major purchase, or even pay the costs of setting up a baby room, a personal loan can be a helpful and flexible solution. While there are some restrictions on how you can use personal loan funds, there’s no need to justify your expenses to a lender.
If you make your payments on time and repay the loan in full, you can use the money however you see fit.
You Can Get a Personal Loan with Bad Credit
You may think a personal loan is out of reach if you have bad credit. But the truth is, even if your credit isn’t perfect, you might still be able to qualify for a personal loan. Several lenders specialize in bad credit loans, and as long as you’re employed and have a steady income, you may be able to get approved.
You may need to pay a higher interest rate if you have bad credit. But even with a higher rate, a personal loan can still be cheaper than alternatives like payday loans or cash advances.
You Can Get a Personal Loan with No Collateral
Another advantage of personal loans is that there is an unsecured option, meaning you don’t need to put up any collateral to qualify. This is in contrast to a secured loan, like a car loan or home equity loan, which requires you to put up your car or home as collateral.
Because some personal loans are unsecured, these tend to have higher interest rates than secured loans. However, they can still be cheaper than using a credit card or a payday loan. And, if you don’t have any collateral, such as a car, to put up for a secured loan, an unsecured personal loan may be your only option.
You Can Get a Fixed Interest Rate
You’ll usually get a fixed interest rate when you take out a personal loan. This means your rate will remain the same for the term of the loan, no matter what happens with the market. This can provide peace of mind, knowing that your payments will always be the same. In contrast, credit cards typically have variable rates that can go up or down at any time.
You Can Get a Fixed Repayment Term
Another advantage of personal loans is that they usually come with a fixed repayment term. This means you’ll know exactly how long you have to repay the loan, and your monthly payments will be structured accordingly. In contrast, lines of credit typically have variable repayment terms. This means that your monthly payments can fluctuate, and you may not be able to repay the debt within a certain time frame fully.
You Can Prepay Your Loan Without Penalty
If you have some extra money, you may be able to prepay your loan without paying the penalty. This can save you money in interest, and it can help you get out of debt faster. Not all lenders allow prepayment without penalty, so check with your lender before making any decisions. But if your lender does allow it, prepaying your loan can be a great way to save money and get out of debt faster.
Personal Loans Can Help Improve Your Credit Score
If you make your loan payments on time, it can help improve your credit score. This is because personal loans are reported to the credit bureaus, and if you have a good payment history, it can reflect positively on your credit report. If you miss payments or default on your loan, it will have the opposite effect.
A Personal Loan May Offer Tax Benefits
Personal loans are not typically tax-deductible. However, there are some exceptions. If you use a personal loan to consolidate other debt, the interest you pay on credit may be tax-deductible. Consult a tax advisor to see if this is the case for you.
Personal loans can be a great option for borrowing, whether you’re looking to amalgamate debt, finance a large purchase, or get some extra cash. They offer many advantages over other types of borrowing, including fixed interest rates, fixed repayment terms, and the ability to prepay without penalty. And, if you make your payments on time, a personal loan can help improve your credit score. So, a personal loan may be the right option if you’re considering borrowing.
By: Raymond James
About the Author:
Ray is a sought-after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.