Should You Take Out a Personal Loan? 3 things to consider
As inflation continues to constrain consumers’ purchasing power, many people use credit to pay bills and emergencies. But while borrowing is sometimes the only option, there are ways you can limit the amount of interest you ultimately pay.
One of the best options is to a. Personal loan interest rates are lower than some other forms of credit. And they serve as a reliable way to cover some expenses.
If this sounds like something you would benefit from, now is the time to start the process.
In this article, we explain what a personal loan is and why you might want to take one.
What is a personal loan?
A personal loan is an unsecured loan, which means there is no collateral behind the loan. You can use a personal loan for a variety of reasons such as: B. for home improvement projects, emergency expenses or.
Personal loan amounts vary from $2,000 to $100,000 depending on the lender, your credit history, and other factors. The terms are between two and seven years.
3 reasons why you could take out a personal loan
The recent rise in interest rates has had a slight impact on personal loan rates. However, if you have excellent credit, you may still qualify for a low interest rate. Read below to understand some of the best reasons to use a personal loan.
Can be cheaper than other types of credit
Many borrowers use personal loans because they are often cheaper than using them . For example, the average APR for credit cards in 2022 is 16.17%. But if you have good credit, you may qualify for a personal loan with interest rates in the single digits.
Here’s how much you can save with a personal loan. Let’s say you have $10,000 on a credit card with an APR of 16%. If you take out a five-year personal loan with an interest rate of 7%, you can save a total of $4,719 in interest over the life of the loan.
The best lenders offer interest rates as low as 4.99% APR, but you’ll likely need a credit rating of 760 or higher to qualify.
Also, it is easy to go through the application process. Some loans are even paid off within a few days. Get cash now in one lump sum and then easily pay it back monthly.
Can pay off other loans
A personal loan can be more flexible than short-term loans like payday loans and title loans. These loans have quick repayment terms, often in a month or less. However, if you choose a personal loan, you can opt for a much longer term with easier-to-manage monthly payments.
If you have a large credit card balance, paying off with a personal loan can also improve your credit score. If you have a credit card, credit bureaus calculate how much credit you’re currently using. This is known as your credit utilization rate, which is 30% of yours.
If you have a large balance on a credit card, you may have a high credit utilization rate, which could hurt your credit score. However, if you can pay off that balance with a personal loan, you canwhile paying less interest overall.
Can help you consolidate multiple loans
One of the main reasons consumers take out a personal loan is to combine multiple other loans into a single loan. Using this strategy, borrowers can simplify their repayment process.
For example, if you had balances on three different credit cards, you could pay them all off with one personal loan. Then you would only have to worry about one monthly payment.
Managing fewer monthly payments can help you avoid late fees and additional interest charges. Late payments can also damage your credit score.
This is not a complete list. Taking out a personal loan offers numerous other benefits, some of which are tailored to your unique personal financial situation. If you’re considering this unique opportunity, it’s best to speak with a lender to determine what you qualify for and how quickly you can get paid.