Personal loans are one of the best and most versatile types of loans because you can use them for anything. Unlike auto loans or mortgage loans, personal loans aren’t reserved for a specific purpose. You can use it for almost any reason, but it's best to borrow only as much as you need.
It’s also easier to apply for personal loans. Lenders use your credit history and income to determine approval of your loan. Borrowers with the highest credit scores usually receive the lowest rates. Once your loan is approved, you’ll receive a lump sum of cash that you need to repay on a monthly basis.
Most people take a personal loan since it doesn’t need collateral to secure one. What lenders do is charge a higher interest rate, which is something you need to consider. It’s best to take a personal loan for critical situations.
Don’t spend it on frivolous things such as vacations or expensive purchases. Use it for things that improve your finances or make a significant impact on your life. There are many situations where a personal loan makes sense, and here are the top three:
1 - Consolidate high-interest debt
One of the most popular uses of personal loans is to consolidate high-interest debt (such as credit card debt) into a single payment. If the interest rates on personal loans are lower than your existing debt, you can pay it off faster. If you use your credit cards and payday loans to pay off your existing debt, then you’ll end up acquiring more in a vicious cycle.
Having to pay a fixed amount of debt each month allows you to reduce your total debt. Using your personal loan to pay your credit card debt also increases your credit score. How? Part of your credit score is your credit utilization ratio which compares your credit card balance to your credit limit. Using your personal loan will help you decrease your credit utilization ratio and increase your credit score.
2 - Home improvements
If you don’t have a lot of equity in your home, then it's best to choose a personal loan rather than a home equity loan. You won’t have to pledge your house as an asset to improve your home. We recommend spending your money on things that will add value to your home, such as a swimming pool, a new kitchen, or a bathroom.
Once you sell your home, there may be a possibility that you can get back the money you spent with the remodelling. It’s still okay if you want to spend the money on fixtures that won’t add value to your home. However, it's still best to spend it on something that will make a profit in the future.
3 - Finance a large purchase
Some people prefer to use personal loans when financing large purchases than use their credit cards. There is a possibility that they may fall into credit card debt. Hence, they use personal loans. At least you can have a predictable payment schedule and end date with a personal loan, unlike credit cards.
Personal loans are helpful for financing certain expenses that you need. Despite the high-interest rates, you can easily pay for your loan each month with a guaranteed end date. If you ever come across any of these scenarios, choose a personal loan over any other type.
Do you need installment loans in Tennessee? Stones River offers real installment loans paid over time. Give us a call today for us to help you with your financial needs.