A personal loan is also called an unsecured loan- just because you don’t need to set up any collateral. The loan eligibility is based on your credit history. So, if you are considering taking out a loan for anything, and you’re wondering what kind of loan you should go for, take a look at personal loans. We’ve gathered all the experts in the financial world to help you make your decision.
Consolidation of Debts
“Consolidating debt is a popular reason for taking out a personal loan. When you apply for a loan and utilize it to repay various other loans or credit cards, you consolidate all of your existing amounts into a single monthly payment. This categorization of debt makes it easy to determine a realistic timeline for paying off your obligations without being overwhelmed. The reduced interest rates are one of the main benefits of obtaining a personal loan to pay off your credit cards. With reduced interest rates, you may save money on interest and shorten the time it takes to repay the loan. Consolidation enables you to repay credit cards in manageable installments with an end date in sight. Who gains the most: Individuals who have many sources of high-interest debt. Takeaway: Using a personal loan to consolidate high-interest debt, such as credit card debt, enables you to combine many payments into a single, lower-interest payment.”
Richard Mews, CEO, Sell With Richard
Has a Short Waiting Period
“One advantageous quality of a personal loan is its quick disbursal rate, making it a good option for covering an emergency expense such as a health crisis, car & home repairs, or covering the costs of unexpected travel. Offers plenty of options: Unlike student loans, auto loans, or mortgages that have a pre-defined purpose, personal loans give you more flexibility to decide what you intend to do with the loan. You can choose to spend it on your wedding, cover travel expenses or use it to consolidate your debt. No collateral required: You do not pledge your assets as security for an unsecured personal loan. Instead, your creditworthiness is used to determine your eligibility for a loan. The repercussions for defaulting on an unsecured personal loan may lead to a lawsuit in worst-case scenarios, but the lender will not be able to repossess your car or home.”
Brian Meiggs, Founder of Saving Junkie
Lower Interest Rates
“Compared to alternative methods of personal borrowing, like credit cards, a personal loan has much more competitive interest rates. Credit card interest rates typically hover around 20%, though many go up to 28-29%. In contrast, personal loans tend to have interest rates within the range of 8-10%. That means that personal loans can be 10-20% cheaper than consumer credit card rates. Flexibility: When you take out a personal loan, you can use funds for whatever financial needs to consider to be personal. Personal loans are one of the most flexible financing types. Not only can you allocate funds however you see fit, but there are many different financing options when it comes to personal borrowing. This means you can choose a financing type that’s right for you and able to address whatever specific financial need you may have.”
Nishank Khanna, Chief Financial Officer Clarify Capital
Easier to get as an Individual
“One advantage of taking a personal loan is that as an individual you will have a chance to qualify, whereas an individual trying to take out a business or commercial loan for personal purposes will not even have a chance to get one. A personal loan can be a great option for someone who needs a loan for purposes not related to starting a business or buying real estate because they will need a specific ‘personal loan’ type or similar to qualify for a money loan that is personal in nature.”
Stacy Caprio, Financial Blogger, Fiscal Nerd
Flexibility, No Collateral, Quick Availability
“Flexibility: When you take a normal loan you do not have the flexibility to spend it on something else. For example, if you have taken a car loan, you can only use it to purchase a vehicle. But a personal loan can be used for anything like paying off medical debt. Collateral requirement not needed: You do not need collateral for the approval of an unsecured personal loan. You do not need to put up any of your assets in order to guarantee a money return. You will face financial consequences if you do not pay the debt but you don’t have to worry about losing a car or home. Quick Availability: Personal loans are easier and quicker to get. If you want a loan for a medical emergency, you can get the loan within 24 hours. As personal loans don’t need much documentation, the processing time is less and thus it is available quicker.”
Justin Nabity, CEO at Physicians Thrive and an experienced and certified financial expert (CFP®, CLU®, ChFC®)
Personal Loans Useful for those with a Strong Credit
“Personal loans have a bad reputation in my industry mainly because we help those who primarily would be considered as subprime borrowers. This means that they have a bad credit history, are high risk in terms of repaying the loan and as a result, they are offered extremely high-interest rates so are even more likely to default on the loan. However, personal loans are actually very useful financial tools for those with a strong credit history and a high likelihood of repayment. For these people, taking out personal loans is recommended for the following reasons: You can build your credit with consistent payments if you have no previous history and are looking to take out a mortgage at a low rate in the future. Loan repayments are usually fixed and interest rates are often lower than credit cards so budgeting can become standardized and comfortable each month. Length of loan is often flexible as is the ability to pay more each month than the minimum. You can use low-interest personal loans to consolidate your debts, making
them more manageable under one monthly payment and often reducing the interest rate. Overall it’s the customer that defines the advantages of a personal loan, as like I said, a subprime borrower wouldn’t have nearly as many advantages as one with a good credit history.”
Scott Nelson, Founder of Money Nerd which focuses on personal finance – particularly debt.
