Need Funds? Why Personal Loan Maybe The Best Option

A personal loan is a loan taken from a bank, or any other financial organization that can be repaid in fixed monthly payments, or instalments. The tenure of personal loans is generally upto 5 years.

Personal loans are “unsecured,” i.e. they are not backed by collateral. Since a secured loan is backed by collateral, it is typically cheaper because in case of a default the lender has the asset. Interest on personal loans is higher and ranges between 10.75% to 24%.

In case of an urgent need of funds, a personal loan is a suitable option for any individual as it does not require a collateral. Another reason for going for personal loans is that it can be used or any purpose, right from consolidating debt to funding for investments or even financing for a big-ticket purchase.

Before finalizing the borrowers should compare personal loans to other types of financing — for example, if buying a car, secured auto financing is probably cheaper, and if funding an education, government-backed student loans might make more sense. But for expenses like travel, wedding or any other personal issue, personal loans are the best form of borrowing offered the financial institutions. Below are a few circumstances where one can look at getting a personal loan:

Consolidate Credit Cards

If someone has one or more credit cards that are charged to the max, a personal loan could be sought to consolidate all the charges into one monthly payment. This scenario becomes more appealing because the personal loan interest rate could be considerably lower than the interest rates charged on credit cards.

Refinancing Loans

Refinancing loans provide some financial relief. The interest rate on existing loans may be higher, and one might be eligible for a personal loan with a lesser interest rate. In such cases, personal loans can be utilised for refinancing the existing loans.

Finance a Purchase

A personal loan can be utilised for purchasing any item needed. A personal loan can be beneficial for a purchase that involves a good amount of money which could be repaid in the form of EMIs. Since the interest rate is higher, one must always take a rational decision for taking a personal loan.

Pay for an event

Any large event—such as a wedding, or other family functions qualifies, a personal loan for a large expense like this might save our day by providing us with a considerable amount on interest with a feasible repayment period. The advantage of a personal loan over a credit card is that the interest rates are lower in the case of the former. Also, credit card dues are to be paid within a month, whereas the tenure of the loan can be predecided by lender and borrower.

Improve Credit Score

A personal loan might help in enhancing the credit score in the following ways:

First, a personal loan will provide for a mix of credit in the report. A variety of credits in the credit score always helps in boosting the credit score of an individual.

Secondly, a personal loan may turn out to lower the credit utilisation ratio. The lower the amount of your total credit you use, the better is the credit score. Having a personal loan in the credit history increases the total amount available for use. And paying back the loan on time is, of course, always good for your credit score.

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Besides this, other factors that make the personal loan a good option in case of requirement of funds:

  • They are relatively quick as they do not require as much documentation.
  • No restriction on the end-use of the money.
  • A personal loan does not require any collateral. So in the absence of any assets like a home, or shares or gold to offer as security, and require money urgently, this is perhaps the most convenient option.

So, if you are looking for immediate funds without any collateral, a personal loan is the right option for you.

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