Benefits of Obtaining a Personal Loan: Expert Insights

Benefits of Obtaining a Personal Loan, What is a Benefit of Obtaining a Personal Loan, woman thinking about personal loan benefits, illustration
Benefits of Obtaining a Personal Loan

Personal loans can be a helpful solution when you need some extra money. They can come to your aid during emergencies or when you’re planning a significant life event, like a wedding, and require additional funds. In these situations and more, personal loans can be a real lifesaver. So we want to give you some expert insights into the benefits of obtaining a personal loan.

Personal loans offer more predictable repayment terms compared to credit cards, and their interest rates are generally lower than other financial products. This is especially important when borrowing a large amount or considering debt consolidation. Most personal loans also come with fixed interest rates. This means you won’t have to worry about unexpected increases in loan costs.

What are the Benefits of Obtaining a Personal Loan

Personal loans offer numerous advantages, but the specific benefits can vary depending on your borrowing needs. It’s essential to consider the purpose of the loan and whether there might be better alternatives before deciding to borrow money.

Personal loans can be beneficial if used responsibly. Personal loans have many advantages, whether you’re interested in secured or unsecured loans. Take into account these ten possible benefits:

01. Higher Borrowing Limit Than Other Debt

Personal loans differ from lines of credit and credit cards in that they provide a lump sum of money upfront. This lump sum can be used for various purposes according to your needs and preferences.

Receiving a lump sum of cash can be highly practical and beneficial. It allows you to pay off high-interest credit cards, settle payments with contractors for home improvement projects, or even indulge in a memorable family vacation.

Credit cards may have relatively low monthly limits regarding large purchases, which can pose challenges. This is where personal loans step in to offer a solution. Personal loans come in varying amounts, typically ranging from $1,000 to $10,000. 

However, some lenders may provide loans as small as $100 or as large as $100,000. This flexibility enables you to finance higher expenses than a credit card typically allows, often at lower interest rates.

02. Flexibility in Use cases 

Unlike other loan types that restrict the use of funds, loan companies (lenders) rarely require you to decide how you’ll utilize the money upfront. This means you can apply for funding even if you’re uncertain about its specific purpose.

You can finance a variety of purposes with personal loans. Major purchases, such as home renovations or essential investments in your health and well-being, can be easily managed through personal loans. Suppose you need to consolidate debts into a single payment with potentially lower interest rates. In that case, a personal loan can be a game-changer. 

Additionally, personal loans are suitable for vehicle financing, be it through auto loans secured by the car itself or unsecured loans for purchasing from private sellers. Also, home improvements are more attainable with personal loans allowing you to increase the value of your property. 

Furthermore, personal loans can be a reliable funding source for land purchases, wedding preparations, unforeseen emergencies, and career development endeavors. While student loans cater specifically to educational expenses, personal loans can cover career-oriented training programs, certification courses, and skill development opportunities.

The versatility of personal loans opens up a world of possibilities. Empowering you to easily achieve your financial goals and navigate life’s significant milestones.

03. Swift Cash for Your Needs

The speed at which you can access funds varies depending on the lender. Some personal loan companies offer quick funding, delivering the money as early as the day you apply. Others ensure your loan funds reach your bank account within a few business days. 

This aspect is essential, especially if you urgently need cash for various reasons. Whether you’re ready to make a big purchase or have pending bills to settle, the ability to obtain funds swiftly can make all the difference.

04. Lower Interest Rates Than Credit Cards

When it comes to interest rates, personal loans typically offer more favorable terms compared to credit cards. Regarding interest rates, personal loans have a clear advantage over credit cards. According to the Board of Governors of the Federal Reserve System, the average interest rate for a 24-month personal loan was 11.48% in February 2023. credit card accounts charged an average interest rate of 20.92% during the same month.

In contrast, credit cards often come with significantly higher interest rates. Suppose you carry a balance on your cards. In that case, the interest charges can accumulate quickly, potentially costing you more in the long run.

What does this mean for you? Well, it means that personal loans come with considerably lower interest rates than credit cards. Choosing a personal loan can save you significant interest charges, making it a smarter and more cost-effective borrowing option. So, when you need money, consider opting for a personal loan instead of relying solely on credit cards.

05. Collateral isn’t Mandatory

Most personal loans are unsecured, meaning you can borrow a lump sum without making a cash deposit or providing any other form of collateral. It’s crucial to fulfill your loan obligations to avoid negative consequences. Still, even if you default on an unsecured personal loan, you won’t lose your assets or property.

But with secured loans, your assets or property are at risk if the loan is not repaid. Unsecured personal loans do not jeopardize your belongings.

06. Easy Application Process

easy loan application process, woman filling loan application, illustration
easy loan application process

When applying for a personal loan, the process is typically straightforward. Especially compared to other types of loans such as mortgages, home equity loans, or home equity lines of credit. You won’t find yourself tangled in complicated paperwork or lengthy procedures. In fact, many online personal loan lenders offer a completely digital application process, making it even more convenient.

Whether you choose to seek funding from a bank or credit union or opt for online lenders, applying for a personal loan is hassle-free. Online lenders, in particular, offer a streamlined experience, allowing you to complete the application within hours. This efficiency is why they can provide quick approval and even deposit the funds directly into your bank account on the same or the next day. Say goodbye to long waiting times and embrace the ease of obtaining a personal loan.

07. Predictable Repayment Schedule

Unlike credit cards, which offer revolving credit, you can borrow and repay your balance repeatedly. Personal loans operate differently. You agree to a predetermined repayment term upfront, providing you with a predictable schedule.

When you take out a personal loan, you borrow a specific amount and commit to making fixed monthly payments. This means you know exactly how much you have to repay each month and when you will become debt-free right from the beginning. You can easily understand how the loan term affects your monthly payment with the help of a personal loan calculator.

Personal loans provide a clear and structured path toward paying off your debt. Ensuring you can manage your finances effectively and achieve your debt-free goal.

08. Customizable Repayment Options

The repayment terms are predetermined, but you still have some flexibility. Different lenders offer varying repayment options, allowing you to choose what works best for you.

While some lenders may provide only a limited number of repayment plan choices, others offer a range of options from 12 to 84 months. Moreover, a few personal loan companies go the extra mile and offer even longer repayment terms. For instance, LightStream allows eligible borrowers to pay off their loans over 144 months.

This flexibility in repayment terms ensures you can find a suitable arrangement that aligns with your financial circumstances and goals. With personalized options, you can confidently choose a repayment plan that fits your needs.

09. Helps You Build the Credit Score

When you apply for a personal loan, it’s important to note that there will be a hard inquiry on your credit reports. However, using the loan responsibly can positively impact your credit score going forward.

One way a personal loan can benefit your credit is by showcasing timely payments on your credit reports. Making payments on time is crucial as it is the most significant factor in calculating your FICO Scores. Additionally, a personal loan can contribute to improving your credit mix, which is another element influencing your credit score.

Remember, every time you borrow money, you have the opportunity to build your credit history. Typically personal loan lenders report your payment activity to major credit bureaus, such as Experian, Equifax, TransUnion, or a combination of these. Consistently making on-time payments helps establish a strong credit history and enhances your credit score. However, it’s important to note that missing a payment will also be reported, potentially hurting your score.

10. Easy To Track and Manage

Opting for a personal loan makes keeping track of and managing your finances easier than juggling multiple credit cards. You may encounter different due dates, lender rules, and interest rates when you have various loans. 

On the other hand, securing a single personal loan allows you to receive a lump sum and make one straightforward payment to a single lender. This streamlined approach simplifies staying on top of your loan obligations and managing your financial commitments.

Conclusion

Personal loans can be a helpful solution when you need extra money for emergencies or significant life events. They offer predictable repayment terms, lower interest rates compared to credit cards, and the flexibility to use the funds for various purposes. 

Personal loans also provide swift access to cash, don’t require collateral, and have an easy application process. They can help build your credit score when used responsibly and make tracking and managing your finances simpler. Overall, personal loans offer a convenient and accessible way to meet your financial needs.

Frequently Asked Questions and Answers (FAQs)

How does a loan inquiry affect my credit score?

Hard inquiries on your credit reports are considered for credit scoring purposes if made within the last 12 months. The impact of a single hard inquiry is usually minimal, typically resulting in a decrease of five points or less. Your credit score can recover within a few months.

How much can I borrow with a personal loan?

Personal loan amounts vary by lender but typically range from $100 to $50,000. Some lenders may offer funding up to $100,000.

What is the best alternative to a personal loan?

The best alternative to a personal loan depends on your assets and borrowing needs. Common options include home equity loans, home equity lines of credit (HELOCs), peer-to-peer loans, credit cards, and cash-out mortgage refinancing.

Are there any penalties for paying off a personal loan early?

Most personal loans do not charge prepayment penalties. However, it’s essential to check for any potential fees before applying.

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