Personal loans can be a great tool if you understand how to use them
If you understand how personal loans work you can get yourself the best deal and improve your finances in the process.
When you are shopping around for a personal loan it is important that you borrow money from a trusted and accredited lender and that you borrow on your own terms.
You should understand the type of loan that suits your financial situation best and what you can afford to borrow (and for how long).
The more you know about your own finances and how personal loans work, the better the situation you will find yourself in.
Sometimes we need loans just to make ends meet, but that doesn’t mean we can’t improve our financial situation in the process. Here are 5 ways that you can use personal loans to make your life better.
#1 – Anyone can get a personal loan (even if they have a bad credit score)
If you are someone who has a bad credit history and score then everything to do with money immediately becomes more difficult. You have to pay more interest on your credit cards, you’ll struggle to see the benefits of saving money, and you will have trouble when you are trying to take out a loan. Having a bad credit score can even affect your ability to rent a property.
Trying to take out finance on a car or trying to get a mortgage is nearly impossible if you have a poor credit score. However, this is not the case if you are trying to take out a personal loan.
The main downside you will see when taking out a personal loan with bad credit is that your interest rates might be higher than usual. There are even some lenders that specialize in lending money to people with bad credit – for example, see the online loans from CreditNinja.com.
#2 – Paying back a personal loan will improve your credit score
One of the best ways to improve your credit score is to pay off your debts.
There are some people who have no credit score or bad credit score but no debts. If this is you, then taking out and repaying a personal loan could boost your credit score.
However, if you find yourself in need of a loan then taking out and paying back a sensible personal loan can help you out financially and improve your credit score in the process.
Your credit score (also known as your FICO score) is measured by independent companies that use your financial information and history to show banks whether you are a person who can be trusted with a loan or credit card.
Your payment history makes up 35% of your FICO score. So, paying off a personal loan early and meeting all your repayments deadlines can drastically improve your FICO score.
#3 – You can use your personal loan to consolidate your loans
While loans can be amazing tools that can help you keep the lights on and a roof over your children’s heads – if you take out too many at once they can snowball into a financial disaster.
You will find yourself paying interest on each loan as well as making the repayments. These all add up and some people end up missing payments because they can’t afford their combined monthly payments.
If this situation sounds familiar to you then you may want to consider consolidating your loans.
You can do this by taking out a personal loan and using it to pay off your other debts. Remember to take out enough to cover all your early repayment fees. You can then concentrate on just paying off one loan.
This new loan will most likely have a smaller monthly payment than the rest of your loans combined. And we have no doubt that you will be paying less in interest each month.
Doing this could save you a huge amount of money and stress.
#4 – Personal loans can be used in emergency situations or to help with projects
When you take out a mortgage you have to use it to buy a house. When you take out car financing you have to use it on a car. What can you use a personal loan on? Well, anything.
Personal loan lenders are very flexible about what you spend your money on as long as you meet your repayment deadlines. They will just give you the lump sum of money and not enquire into your spending plans.
So, if your house has been damaged you need to cover the emergency costs until your insurance payment comes in – then a personal loan is a great option for you.
If you want to do work on your home before you put it on the market to improve its value – then a personal loan is a great option for you.
If you have had to take sick leave and haven’t earned enough money to pay off the bills this month – then a personal loan is a great option for you.
If you need to replace a key home appliance like an oven but can’t afford to do it out of your own pocket – then a personal loan is a great option for you.
#5 – It’s a competitive business
There are a large number of personal loan companies out there. This means that you, the consumer, have a lot more options than they want you to realize.
You will be able to shop around for a loan, research companies, and negotiate until you find the best loan for you. You have options and these companies know that.
When you are looking for a loan provider you should make sure that they are insured and that they are part of at least one lending alliance or institution. Tools like Trustpilot and money safety charities will be able to help you discover which lenders can be trusted and which ones should be avoided.