From banks and credit unions to family members or friends, taking out a personal loan or line of credit can be a solution for paying off high-interest debt or tackling big bills. Once you figure out the details of the personal loan process, you can use a personal loan calculator to find out which amount, term, and rate works for you and your lender. While not right for everyone, here are some of the benefits of taking on a personal loan below.
1. Immediate Funding
Getting personal loans can usually happen very quickly — sometimes even within the same day you apply. This can make them helpful for those that need access to money quickly or to make payments on debts you’re already late in paying.
2. Flexibility of Use
Unlike a car, home or student loan, personal loans are usually multipurpose. They can be used for anything from travel or medical expenses to updating your home, financing a wedding or paying off a big trip without restriction, making it easier for you to get approved. There are some services out there that require you to specify what you are using the money for so it’s important to read the information carefully.
3. Competitive Rates
Different lenders may offer different rates for a personal loan, but you might be able get a discount or better deal depending on your relationship with a lender. You also may be able to choose between variable and fixed rates but it’s important to make sure that your rate doesn’t leave you with payments higher than you can afford. Also, in most cases, the rate you are offered will depend on your credit, with the best rates going to applicants with the best credit. (If you don’t know where you stand, you can check your free credit report summary at Credit.com.)
4. Lower Minimums
Personal loans can be helpful for paying off other debts because there are rarely required minimums near the amount of other loans.
5. Little Security Required
This type of loan does not usually require as much documentation (unlike a mortgage or car loan). This often makes the processing time much quicker. You also don’t typically need collateral or security.
Of course, anytime you are borrowing money it is important to make sure that you are making the right financial decision that is in line with your current and future goals. It’s important to make sure that you will have affordable payments, that you don’t take on more debt than you need and that you have a plan to pay back the personal loans. Also, while sometimes the ability to take on a personal loan can help build your overall wealth, it’s a good idea to weigh whether what you are getting is worth the money you will be paying in interest.
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