6 Reasons Why Personal Loan A Better Option Than Alternative
Personal loans are generally considered a bad choice by the majority of people. Yes, you read it right! It’s mainly due to the interest, penalties, and fees that exceed the borrowed cost value. However, personal loans aren’t necessarily that terrible thing. A personal loan can be a good alternative if you work with a reputable lender, use the loan for the correct reasons, and can dedicate yourself to repaying it.
But if the loan you are seeking exceeds up to a three-digit rate of interest and you are inconsistent to repay it, a personal loan could do more harm than good. In simple words, it wholly depends on you and your will whether it’s a great option for you or not.
So, with so many alternative personal loan options available in the market, what stands out from personal loans over other loan alternatives?
Let’s understand it, by comprehending the meaning of a personal loan
A personal loan can be described as a cash loan that you can obtain from personal loan lenders or creditors. It is a type of loan that can be used to pay multiple payments or debts. Making different payments like financing a costly asset like a vehicle, debt repayment, or even covering the debt of major expenses such as a vacation or wedding are some great examples for which you can use a personal loan.
Personal loan eligibility criteria you must pass
It is critical before you initiate your search for a loan you must get acquainted with the list of documentation you must need and the qualifications that are required. In order to qualify for the application process.
The requirements of personal loans do vary as per the lender’s requirements. Besides, there are a few factors that one must have to clear while screening the loan application like the income or the credit score. The five must-have requirements to pass the loan application are:
- The DTI ( Debit To Income) ratio must be less than 36%.
- Your yearly income (ideal is $20,000 to $45000 per year) depends on the institution and tax return proof.
- Collaterals assets for recouping the amount balance.
- Personal loan origination fee that goes between 1% to 7% of your total loan amount.
- Your credit score (ideal 610 to 640) and your credit history.
Reasons That Prove Why Personal Loan A Better Option Then Alternatives:
Easy Credit Card Debt Pay
One of the beneficial reasons to take a personal loan is, that it helps you pay off any debt with ease, even when it is about paying off your credit debt. If you borrow a big amount using one of your credit cards that come with high-interest rates. Then paying such an amount by taking a personal loan could result in a money-saving route for you.
If you calculate your credit interest with personal loan interest you will find a huge difference between both of them. This difference will allow you to easily pay the credited amount with less interest and can help you balance down faster. With all that it will also ease out to keep paying off and track your debt without creating tracking confusion and mess.
Easy and Affordable Low-Interest Rates
When it comes to borrowing amount as a loan, interest plays a major part in attracting clients. At the same time, this is one of the factors every customer checks while applying for a small loan. If you look at the current scenario you will find that not just the non-banking private sector but public sector banking firms are also offering personal loans with low-interest rates.
Besides, peer-to-peer (P2P) loan providers offer lesser and the most affordable interest rates that can attract any loan seeker with ease. This is the prominent reason why most people engage in getting a personal loan as per their financial needs.
Easy Dealing With Uncertain Moving Costs
Moving costs can cross your path in multiple forms be it the emergency or job relocation you require a specified amount anyway. Taking personal loans to cover the moving cost is a smart option to go with specifically for the upfront expenses. Some uncertain scenarios in which taking moving loans make more sense are:
- When you receive a job offer and relocate to a different country
- When you are shifting to a new place
- When you’re separating from your partner
- You felt like giving more space to your kid.
But at the same time, you should think carefully about whether your current cost of living and revenue makes it possible for you to repay your borrowed loan. In fact, you can get moving loans even when you have bad credit in your account. Always make sure to perform calculations before as it can harm you more than they benefit you.
Easy Home Repairs Under Budget
Planning to buy a new home? Or face some uncertain home reconstruction trouble? No worries, personal would be a great option for you. In fact, not just home construction but you can even take a personal loan for buying new appliances, constructing a new guest room, or installation of a new furnace.
Getting all this and making payments via personal loans is super easy. As taking a personal loan is way cheaper than taking multiple other loans through a seller or using a credit card. Regardless of this, in case you have your own home equity, then choosing the home-equity line of credit or home loans would turn out less expensive for you. This is probably due to equity loans being a more secure way to save your home.
Some another most uncertain but common list of issues for which you might require immediate attention:
- An issue with the air conditioning
- Need of quick fix heat pipe repair
- Broken furnace pipe repair
- Gas leak at home
In the above scenarios, a personal loan will act as your piggy bank which you can use when dealing with financial needs.
Helps You In Improving Your Credit Score
If you take out a personal loan and pay it off timely, it will help you enhance your credit score. Yes, you read it right! It helps especially when you are running your credits with a history of missed payments or debts. Not just this but it also helps with the credit mix.
You know how credit works, so having different loans in your history that you handled with responsibility earlier speaks a lot about your capability of dealing with loan responsibility. This increases your score quickly without any issues.
However, you must understand that borrowing a loan without a need cannot help you in improving your score. In fact, if cross-checked it might put you in a witness box to defend your actions, or worst, your credit card might be banned from use. Thus, it is always better to keep your bills paid on time.
Personal Loan Repayment Flexibility
There’s nothing hidden that the personal loan that you take to pay some specified loan comes with either pre or partial payment charges. Charging foreclosure fees depends on bank policies. The charge percentage can go anywhere between 3% to 5% of the balance amount.
This means you have to pay a little amount as a fee in case you desire to pay off your loan’s outstanding amount before the tenure ends.
This will help borrowers to reduce their overall burden of debt. It is because of the deduction of interest payments that must imply in the future. However, it can still push you low by any amount based on the amount of loan that you had taken.
When to choose personal loans over alternatives?
As mentioned earlier, a traditional loan can be beneficial in multiple ways but have you wondered when exactly you can consider a traditional loan? Let us tell you, that most personal loans offered are unsecured loans.
This means you don’t need to put in collateral as proof, most above that you can use personal loans for almost anything. Be it a vacation, uncertain expense, a medical emergency, or a big expense. So, when choosing a personal loan over an alternative make a great choice:
- In over 80% of cases, you don’t need to submit collateral when taking a personal loan which makes it a great option for those who are unable to offer collateral.
- When you failed to qualify for the lowest interest credit and searching for a better alternative to borrowing a good loan. As the interest rate of personal loans is lower.
- Flexibility to borrow money for a shorter and specified period of time. The ideal personal loan goes anywhere from a minimum of 10 months to a maximum of 7 years.
- When you are looking for the low expense money borrowing option.
- When there’s a credit limit on your credit card and you need over-budget borrowed money.
So, above are some positive points that you can consider if you are a little skeptical about when to choose a personal loan and whether to go for a personal loan or not. Yet, you must understand that taking a personal loan comes with responsibility. Always make sure to evaluate your capability to repay the loan.
List of Different Types of Personal Loans
There are 8 different types of personal loans you might encounter while you search in the market. Depending on your requirements you may choose any of these personal loans. That is:
- Secured Loans –
- Unsecured Loans
- Fixed Rate Personal Loans
- Revolving Personal Loans
- Installment Personal Loans
- Cosigned Loans
- Variable Rate Loans
- Payday Loans
Some Smart Tips To Compare Personal Loans
- This is a rare case but many people encounter lenders who do not ask for any documentation origination fee. Always make sure to ask for the documentation fees. If the lender denies then see if the documents include APR (Annual Percentage Rates) or not as it might impact your loan amount later.
- Nowadays many personal loan lenders offer an inquiry option to their clients. You can take advantage of this service by asking queries or even sharing your personal financial condition. This way you will find out whether you are eligible or not including terms and conditions as well as installment rates.
- You know you can never win the heart of personal loan lenders if you failed to display a good credit history. Make sure to have an ideal credit score of 610 or more than this. This way you will not save your time but the loan lenders’ too.
- Make sure to cross-check whether the offered loan is coming under your desired budget or not. Things like personal loan charged fees could be the reason that might take you over budget.
- Compare different offered interest rates by different lenders available in the market. To do this you can connect to online personal loan lenders. The best part is you can easily find detailed information about the personal loan installments as well as the interest rates of personal loans.