Many people automatically think that debt is bad. This is not always true. Borrowing money, whether from a friend, family, a bank, or credit card simply means you are borrowing from your future. As long as you are sure you can pay the amount you borrow back with interest, this will boost your credit immensely and show that you are responsible for your finances. Personal loans are a favorite due to the simple fact that they are receiving unsecured money without having to hand over any form of collateral. In the process, people use these available funds to consolidate their debts into a lower-interest account, or pay off debt. Funds can also be used as loans for repairs, bills, textbooks, and other expenses. The bottom line is that personal loans are not always detrimental to your credit. There are 5 great reasons to apply for a personal loan.
1. Lower Interest
Even though personal loans come with higher interest rates than secured loans that require collateral, rates are still significantly lower than the interest rates of credit cards. In fact, personal loans can even have lower interest rates than payday loans. The better your credit score, the lower your interest rate will be.
The primary purpose of taking out a personal loan is that you can use the funds freely and for a wide variety of purposes. Many lenders require information on what you intend to use the funds for, though they will generally accept any pressing matters including home repairs, vacations, buying gifts, etc. For secured debts like car or home loans, you are much more restricted in the ways you can use the allocated funds you receive. Even so, try to avoid financial debt if you can and don't get carried away with expenses that are unnecessary.
3. Easier to Qualify
If you already have an account at your bank, it's more than likely that you will have a rather easy time qualifying for a loan through that bank, since they already have your information and a history of your past transactions. They can analyze your credit history and the potential risk that you represent. Having a good rapport with your bank always helps, even though personal loan applications should go through easily. In some cases, your bank will focus on your eligibility based on your income and the reasons your credit has been hurt rather than only taking into consideration your credit score.
4. Less Risk
Unsecured loans are less risky since nothing is being placed as collateral - your home or car is safe and not part of the equation. You stand to lose less, and should an emergency present itself that prevents you from repaying back the debt, your personal property cannot be taken to cover for that loss. However, this doesn't mean that you are 100% free from any financial repercussions if you need to default on a loan, it just means your personal possessions will not be taken from you.
5. Financial Freedom
Lastly, applying for a personal loan gives you financial freedom to do whatever you need to do, pay for whatever is needed to get you and your life back on track. You use of money isn't restricted to any purpose, so be wise and specific on what the funds will be allocated for. If you are in debt and owe a significant amount of money in credit cards, you can pay off those funds and therefore consolidate multiple cards into one all encompassing low-interest loan.