Personal loan is becoming increasingly popular among young generation to finance their big-ticket purchases. It seems like today’s generation prefers to buy now and pay later.
1. It helps consolidate credit card debt
Generally, payments on your credit card debt or your minimum monthly payments are too high due to associated interest rates. In such case, a personal loan with a lower interest rate may be the best option to clear off your debt. Credit card can charge as high as 20 percent, and if your credit score is good, you could probably get a personal loan for 8 to 10 percent and save on the interest rate. Debt consolidation reduces costs by lowering the interest rate on debt and reducing monthly payment.
Now it has been very common to take a personal loan to consolidate credit card debt.
2. It helps you finance a big-ticket purchase
However, it’s easier to just pull out your credit card for a big-ticket purchase, in many cases it’s actually prudent to use a personal loan instead because the rate for a personal loan is usually lower than a credit card rate. Personal loan is a helpful financial tool for major purchases like furniture, latest electronic gadgets, home appliances and many more for which you have not allocated the budget in advance.
3. It helps you avoid paying high interest rate
You must compare the interest rate on your credit card with the interest rate on the personal loan to make sure which interest rate is lower. If you have good credit score, you would qualify for a lower interest rate. When you get a personal loan, you agree to repay your loan with a certain span of time, which is generally 3 to 5 years. However, you can negotiate shorter or longer terms with your lender. If you pay off your loan before the agreed term, you could save hundreds or even thousands of dollars in interest rates depending on how early you repay your loan.
4. Make Home Repairs Before They Get Worse
During the financial crunch when your home requires maintenance, you know the shock of having to make these home repairs. Sometimes it might be cheaper in the long run to borrow a personal loan to make the repairs before they get worse. Replacing home appliances with more efficient ones may save you money quickly.
5. It helps increase your credit score
If you default on a credit card and you are spending close to your spending limit every month on your cards, your credit utilization will grow high and lenders will consider you a higher risk. That is where a personal loan rescues you.
If you replace your credit card debt with a personal loan and make regular payments towards your personal loan EMI, your credit score will recover gradually. That’s because credit cards are revolving loans and, on the other hand, personal loans are offered for a fixed repayment term, meaning there’s a timeline for you to pay back the loan. This will help you curtail your credit utilization and also diversify your debt types, helping rather than hurting your credit score.
Personal loan is the best option for everyone to meet financial exigencies they experience in buying a house or a car, children’s higher education, small home renovation works, or even in cases of medical contingencies.
Thus a personal loan is not just meant for financial exigencies but is also for the purpose of credit building. Contact us about a personal loan to help you save money.