When Should You Take a Personal Loan?
Personal loans, unlike mortgage, auto, or student loans are not marked for a specific purchase and as long as they are borrowed for a responsible and legal purpose, how they are used is entirely at your discretion. However, unsecured personal loans tend to levy much higher interest rates.
Here are 4 scenarios where taking out a personal loan may prove advantageous:
Consolidating All Your Credit Card Payments
If you have one or multiple credit cards that are charged to the max, you can get a personal loan and consolidate all the charges into a single monthly payment. An additional advantage is that the interest rate on the loan amount could be much lower than the annual percentage rates (APRs) on your credit cards.
Refinance Your Student Loan
Depending on the type of loan that you have, your student loan interest rates may go up to more than 7%. In some cases, you may end up with considerable savings by getting a personal loan to pay off your student loan amount. However, student loans tend to have certain tax advantages, and using your personal loan to pay for your student loan may cause you to lose certain benefits.
Use It For Large Expenses
In the case that you are looking to purchase a high-value item, it may be more advantageous getting a personal loan and making the payment in cash rather than financing through the seller or using a high-interest credit card. Similarly, in the case that you are paying for a large event, such as a wedding, where you would not be able to pay off the costs within a month, consider a personal loan that involves a lower interest rate compared to your credit card.
Use It To Improve Your Credit Score
A personal loan can help improve your credit score by helping your “account mix” with different types of loans. It can also improve your credit utilization ratio by reducing the value of purchases on your credit card. And lastly, timely repayment of the loan can further improve your credit score.
Personal loans can be an important financial tool in certain situations. Make sure to research the different options thoroughly before deciding to apply for one.