A personal loan is a type of loan that lets you borrow money for reasons other than business, or property purchases. These loans are unsecured loans, which means the value will not be secured against a collateral. Instead, your lender will rely solely on their knowledge of your ability to pay off your loan. That’s why it might be difficult to qualify for a personal loan compared to most other traditional loans available.
If you’re thinking of taking out a large sum of money, but you’re not sure which financing option would work best for your needs, it’s ideal that you learn more about personal loans. Knowing the different ways that these loans can outweigh other options can help you feel more confident in your financial decision.
Credit cards are often considered the most viable alternative to personal loans because they work similarly. That is, you can get a lump sum that you can pay off monthly until you’re able to complete the entire amount. Of course, credit cards can make it even easier because there really isn’t a need for an application process as long as you have the card. You can essentially get the amount you need given that it falls within your credit limit.
The difference is that credit cards often impose very high interest rates. This is what really weighs against the convenience that they offer, and is ultimately the reason why people will often compare them to personal loans.
In essence, personal loans are cheaper in the long run because of their lower interest rates. So even if you might have to apply and qualify for one, they make up for the process by giving you more affordable terms.
Remember that most other loans will be restricted, allowing you to spend your funds on the purpose stated in your application. In some cases, you might not even be able to hold the funds at any time during the process as your lender may deal directly with the seller.
The personal loan is beneficial in the sense that the funds can be used however you deem fit. The amount will be credited to your account, and you’ll get to spend it however you might need or want to.
If you have several smaller high-interest loans under your name and you want to clear them out, then a personal loan can help. It’s possible to borrow the sum you need to pay off different loans, and then consolidate your debt so that you only have to think of one monthly payment.
This strategy can actually help you save on interest, and even gives you the opportunity to rescue your credit score, especially if your debts were taken from institutions that can impact your score.
Credit cards can only really lend you a value within your limit. If you’re thinking about using your personal loan to start a business or even renovate your home, then the amount your credit card will allow might not be able to meet the sum that you need.
A personal loan may be able to give you a much larger sum of money, without being too hefty on your pocket. That’s why individuals who might need more funds to finance bigger purchases or expensive construction costs opt to take out a personal loan instead.
Other loans such as auto loans or home equity loans require collateral in order to approve your application. This means you might have to put your home, car, or other properties on the line in order to secure your loan. If you’re unable to pay back the value you borrowed, then the collateral can be repossessed.
Personal loans don’t require any form of collateral. So individuals who don’t have anything of significant value to their name (like houses, land, or cars) can still acquire the loan.
Depending on your lender, you can avail of a personal loan that requires full repayment in 2-5 years. This can make it much lighter on your budget, giving you enough time to cover the expense without having to designate too much of your monthly income to the cost of your loan.
In some cases, lenders might also stretch your repayment term up to seven years, or even more. Of course, that will depend on how qualified you are for that kind of term. But it’s not impossible.
What’s nice about personal loans is that they give you a large sum of money as long as you qualify. So, since this money can be spent depending on your own unique needs, they can be used for a variety of expenses, even those that you might not expect.
Of course, you will still have to pay for the loan amount over a period of time, but since they can be extended to several years, they can be much easier to pay off versus a one time emergency payment that you might not be immediately capable of shelling out.