Home Business When does it make sense to apply for a personal loan?

When does it make sense to apply for a personal loan?

There are only a handful of people who are fortunate enough to never need a loan. Seriously, who can buy a house or a car with cash these days? Most of us need help in the form of a secured loan from a financial institution. These types of loans offer favorable interest rates mainly because there is less risk to the credit provider due to assets such as a house or a car which can be sold if you suddenly aren’t able to repay the loan.

But what if you need money for your child’s education and you don’t have surety. This is where banks offer unsecured loans, also known as a personal loan. Borrowing to fund your child’s education or to start a business can make sense if you have a good business plan. But borrowing money to pay for consumables, food for example, or to fund luxuries are, in most cases, not a good idea.

Personal loans and consolidation loans are designed to support you with your plans, giving you financial aid in your journey to financial stability.

Personal loans are good for people with moderate debt loads and a good credit score who are looking to simplify or accelerate their debt repayment. They are not secured by any property or surety and should be made only after doing some research and financial planning. Interest charged on unsecured credit is typically higher than the interest charged on secured loans because of a greater risk to the credit provider.

Some people use personal loans to consolidate multiple loans and credit card debt into one payment as it often lowers your total cost of credit and simplifies your monthly bills.

Consolidation Loans make managing your money a little easier when your goal is to regain financial stability. They are especially helpful if you want to simplify your credit by settling other debt and turning several loan payments into one cost-effective payment, reducing your total cost of credit.

Here’s why a Debt Consolidation Loan could be right for you:

  • It enables you to consolidate your debt with repayment terms from 18 to 72 months.
  • It simplifies your management of multiple lenders and multiple loans.
  • It often results in savings, due to the consolidation of administration fees, reducing your total cost of credit.
  • A reduced installment frees up cash flow.
  • A reduced installment may also result in you being able to access additional capital.
  • No settlement quotes are required and you can consolidate up to five accounts from a wide range of credit providers.

Consolidate Credit Card debt with a personal loan when:

You have a plan to pay off your debt

If you simply roll all your credit card balances into one big personal loan without having any idea how you’ll pay that debt off in the next five years, then it certainly won’t work for you.

The new monthly payment is achievable

If you struggle to repay the personal loan you will only be tempted to rely on your paid off credit card. In the end, you will have both the personal loan and credit card to repay.  Be honest with yourself.

Your spending is under control

Consolidating your credit card debt with a personal loan does not get rid of the debt, it just moves it around.  Living beyond your means will not help you to regain financial stability.

Your credit score is high enough to obtain low rates.

You get a high credit score by always paying at least the minimum amount of your repayment on time. If you’ve missed payments regularly, the rates on the personal loan could be too high to justify consolidating your debt. It is best to check your credit score and interest rate before you apply.

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