4 tips on how to use a personal loan

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4 tips on how to use a personal loan

Personal loans provide an effective way of debt consolidation. While banks offer personal loans at slightly lower rates of interest, a moneylender can provide you the loan more quickly. Even if you have a bad credit score, you may still get a quick approval from licensed moneylenders. However, you should always get a personal loan for your needs rather than wants. For instance, you can use the loan amount for a financial emergency, setting up a new business or for your education. Here are some tips on how to wisely use a personal loan.

Building better credit

A personal loan can also be used to improve your credit score. However, it is necessary to make timely payments. This also helps lower the debt usage ratio, a crucial factor that credit rating agencies use. This works by getting a personal loan instead of making multiple purchases on credit cards. However, you should check the credit report at least once a year to make sure that the information is correct. Higher credit scores invariably mean lower interest rates. Moreover, personal loans being more difficult to get than credit cards, are favourable for credit reports.

Getting out of debt

It often happens that payments of purchases get delayed for long periods of time. Individuals with credit cards often fall into the trap of minimum payment. One way to deal with this problem is by taking a personal loan. You can use the loan amount to pay off your outstanding debts. Before taking a personal loan, however, you should compare interest rates of multiple moneylenders. Lower interest rates mean that you have to pay less on repayment. Personal loans for debt consolidation allow you to make one payment instead of multiple payments. Typically, this helps save 5-7% in interest charges.

Paying off credit card debts

One can even save money by the combined use of credit cards and personal loans. This is for individuals who qualify for a personal loan at a lower interest rate than they are currently paying for credit cards. Let’s say, you have a credit card balance of $5,000 at an interest rate of 21.99%. If you can refinance using a personal loan at a rate of interest of 12%, you can save $500 within a year. In the 3 years of repaying this debt, you can save $1,500.

Making home improvements without equity

People usually pay for renovation using construction or home equity loans. However, if you cannot avail these options, a personal loan from a moneylender is a good idea. For people who are planning on moving out soon, certain renovation styles can help raise the value of their home. Whether you are considering remodels for the kitchen or the outdoors, pay using a personal loan. However, it is a good idea to assess your house’s value and consult an expert.

You can use personal loan for a number of other expenses. However, you need to make sure that you are borrowing money from a licensed moneylender and are making timely repayments. You can consider getting a personal loan for buying a car or for your next vacation.