Why loan is sometimes necessary?


For a variety of circumstances, personal loans can be a viable option. First, let’s define a personal loan. Some loans are earmarked for a specific purchase. You can buy a home with a mortgage loan, you purchase a car with an auto loan and with a student loan, and you pay for college.

Whereas, a personal loan can be utilized for everything. Some lenders may question you as to what you will do with the money they lend you, but as long as you’ve borrowed it for a responsible and legal reason, you can utilise the money for any purpose.

Below are five circumstances in which a personal loan might be a good idea.

  • Consolidate Credit Cards

If you have one or more credit cards charged to the max, you can get a personal loan to consolidate all the charges into one monthly payment. This scenario is even more appealing because the interest rate on this loan could be considerably lower than the annual percentage rates (APRs) for your credit cards. The only risk here is that you might feel so relaxed about your newly available credit limits that you load more on to your cards before the loan is repaid.

  • Refinance Student Loans

Refinancing student loans can provide financial relief to an extent. Your student loan interest rate maybe 6.8% or higher, depending on the type of loan you have applied. You might be offered a personal loan with a lower interest rate that allows you to pay off your loan(s) faster.

If you decide to use a personal loan to pay off all or a portion of a student loan, you will lose the option of deducting your interest payments (when you file your income taxes) along with other benefits provided by the loans, such as forbearance and deferment. Moreover, if your balance is sizable, a personal loan probably won’t cover it anyway. Think through all the issues very carefully before you choose to refinance your student loans.

  • Finance a Purchase

Financing a purchase depends on whether that purchase is a want or a need. If you’re going to take a loan anyway, getting a personal loan and paying the seller in cash might be a better bargain than financing through the seller or a high-interest credit card. Don’t ever make a decision about financing on the spot, but you may ask the seller for an offer and compare it to what you might get through a personal loan. You can then decide which the right choice is.

  • Pay for a Wedding

Any large event such as a wedding is qualified, if you end up putting all associated charges on your credit card without being able to pay them off within a month. A personal loan taken for a large expense such as wedding might save you a considerable amount on interest charges, provided its rate is lower than your credit card.

  • Improve Your Credit

A personal loan may also help your credit score in three ways. First, if your credit report mostly shows credit card debt, a personal loan might help your “account mix.” Most often, having different types of loans is favourable to your score. The best personal loans for bad credit are more limited in options but are still a better bet than payday loans.

Second, it may result in lower credit utilization ratio which is nothing but the amount of total credit you’re using compared to your credit limit. If the total credit amount used is low, the better your score will be. Having a personal loan increases the total amount available for use.

And paying back the loan on time is, of course, is always good for your credit score.