Many people have an affinity for personal loans. With alternatives like payday loans and credit cards, applying for a personal loan has several critical advantages than its competitors. Here are some of the benefits you can enjoy when applying for a personal loan.
Possibility of a higher borrowing limit
A card’s borrowing limit depends on the issuer or the credit card network. Usually, it goes with high-risk borrowers have lower credit limit while highly qualified people get more significant credit limits. For example, the borrowing limit for people who have a poor credit score has at least $300, while people who have an excellent credit score can have a borrowing limit of a maximum of $5000. For credit cards that have no annual fees, they can range from $2500 to $10000.
Like most lenders, credit card networks employ several crucial factors to set a client’s spending limit. These factors come directly from the client’s credit reports like your debt-to-income ratio, the time and frequency of credit inquiries, income and employment history, credit score, etc.
On the other hand, personal loans typically have higher borrowing limits than what credit cards give. Of course, the spending limit still depends on the lender itself, but most of them have a maximum of $25000 to $50000.
Personal loans usually don’t need insurance if you defaulted on a loan. If you are scared about losing your car, house, or valuable properties, the consequences of defaulting on a personal loan do not usually confiscate these things. But still, defaulting can have severe consequences and will affect your credit score significantly, so try to avoid it.
Revolving credit lines like home equity lines of credit and other types of credit cards usually have a variable interest rate, repayment terms, and monthly balances. The only thing that is set in stone in these lines of credit is the repayment schedule. Also, your monthly payments depend on your credit utilization ratio, and your interest rates are subject to benchmark rates, which changes often.
Personal loans usually have a fixed interest rate, monthly payments, and repayment terms. When approved, you will know exactly how much you will pay for each month, the duration of your repayment, and the interest you will pay each month and its overall total.
Consolidating credit cards
If you have multiple credit lines that have been maxed out, you could apply for a loan, and when it is approved, you can consolidate all your charges within a monthly payment. Also, the interest of a personal loan is significantly lower than the annual percentage rates on your other credit card accounts, which makes it easier and more affordable to pay off all your maxed-out credit lines.
It can improve your credit score
Personal loans can help you fix your poor credit score in more ways than one. If your credit report happens to have mostly credit card debt, then a personal loan can help your credit report have mixed credit types. That could help you to leave a good impression on your lenders if you want to apply for another loan in the future. If you are interested more about this topic, check out Loanza.
Also, personal loans can help you with your credit utilization ratio. If you don’t know what that is, the credit utilization ratio is the percentage of the credit you are currently using compared to your overall credit limit. Personal loans can give you a higher credit limit, which makes your credit utilization ratio lower. Lenders typically want to see a rate lower than 30%. Not to mention that having a lower credit utilization ratio has a positive effect on your credit score.
It will help you finance a one-time big purchase
Before you make a significant purchase, there are several things you have to consider before doing it. Make sure that your income, credit, and other factors qualify you for a low-interest rate than your other credit card APRs. Also, a personal loan is applicable if you don’t expect the purchase to be paid within a month. Also, only use a personal loan to finance a bargain if the seller doesn’t allow the use of a credit card for purchasing.
If those factors are met, then you are good to go to use a personal loan for a big purchase. It can be used to pay for several purchases, like buying a new car. Of course, an auto loan is more optimal to buy a new car, but if it is a private-party transaction, it is better off to use a personal loan.
If you are planning on a fantastic trip in the future, but you are not able to pay for it in a lump sum, you can apply for a loan to reserve your airplane tickets, hotel and other living expenses, and additional costs during the trip itself.
Personal loans like CreditNinja loans can be useful for a lot of things, given it is under the right conditions. If you want to finance something that is of great importance but is unable to pay for it directly, you can apply for a personal loan. Be sure to ask for advice from a trustworthy financial advisor or a friend to make sure you have considered all the options.