In a variety of circumstances where there is no other option, personal loans are a much-needed necessity. Let’s see what a personal loan actually is to understand why they are a great option. Traditionally, loans can be classified into different categories depending on their targeted usage. Let’s consider an example; a loan which is used to buy a house and real-estate is termed as mortgage loan. Likewise, a loan taken out to buy a car is termed as an auto loan and a loan taken out to pay for educational expenses is termed as a student loan. But personal loans are not specific to a certain expense; instead personal loans can be used for any type of expense.
The big difference, though, between these various types of loans comes in the varying concept of a collateral for each type of loan. The apartment bought becomes collateral for a mortgage loan, the car bought becomes collateral for an auto loan, but there is no collateral for personal loans terming it “unsecured”. This is the reasons different interest rates may apply.
5 situations to take out a personal loan
Personal loans are very useful in helping to manage your time and resources when you are faced in different financial situations. Online loans are the best in this case as different online lenders have different interest rates and payment plans which can help you choose efficiently according to your needs and preferences.
Following are some scenarios and situations where personal loans should be taken:
1. Consolidate Credit Cards
If you have maxed out multiple credit cards a personal loan can consolidate all your credit card chargers into a single or periodic monthly installments. Adjusting your finance into this method can significantly lower the repayments on your interest rate charges compared to repaying your interest rate of your personal loan.
2. Finance a Purchase
Online loans can be used to finance expenses or emergencies that cannot be put off. Such as, the need to buy an urgent plane ticket that was unplanned for. In such cases, online loans are perfect in providing you with fast cash allowing you to get through the emergency and to pay back the funds at a later date.
3. Improve Your Credit
A personal loan can be used to positively enhance your credit score in three ways.
Firstly, if the credit score and history displays a majority of only credit card debt, a personal loan can help change this negative score to a positive score.
Secondly, a personal loan can serve to reduce the credit utilization ratio. In other words, the lower your credit amount, the better your score. A personal loan generally boosts the total amount that is available to you for use.
Finally, you can also improve your credit score by reimbursing the debt on time using a personal loan.
4. A Medical Fee that your Insurance Doesn’t Cover
A personal loan is a great option to pay for the cost of a potential medical emergency which could happen all of a sudden. You don’t want to be stressing about other factors if you’re getting an operation or if you might be out of work for a short amount of time. With personal loans, cash can be delivered into your bank account within a day and you can borrow different amounts of money depending on your situation. Once you know how much money you want to loan you can setup a flexible payment plan that best suits your needs.
To Advance Yourself
The biggest investment you can end up making is in yourself, and that money obtained from a personal loan is well spent on training and skills development. When you know that you’ll be more marketable for a certain accreditation or technical skills, it makes good sense to proceed with a personal loan to better your future, especially if you haven’t got the funds at hand.
In short, personal loans are purely situational and should never be taken lightly. If the situation demands immediate funds, then personal loans should be sought after to cover such expenses and pay the debt back on time before you get pressured by the high interest rates.