Personal loans are commonly utilized to help bridge the gap between the money that people have and the money that they need. The uses of personal loans are numerous and widely varied, ranging from the payment of emergency circumstances to helping individuals pay for the honeymoon of their dreams. Whatever the reason may be for taking out the loan, there are three distinct benefits that all personal loans offer to borrowers.
Credit Card Interest Rates are Much Higher
One of the most common uses for personal loans is the consolidation of credit card debt. If you have more than one card especially, you are likely paying a tremendous amount in interest fees alone each month. A personal loan allows you to pay off your balances, possibly even in full, so that you are no longer trapped by sky-high interest rates.
Personal loans do charge an interest rate as well, of course, but the average personal loan still has a lower interest rate than the average credit card. By consolidating credit card debt this way, you can cut your interest rate payments in half – and in no time at all.
You Can Use a Personal Loan for Anything
Personal loans can be used to pay for pretty much anything, with a few exceptions. For example, you cannot use the money from a personal loan as a down payment on a new home. Beyond the few exceptions, you can fund whatever you want or need with a personal loan.
Here’s a short list of what personal loans are often applied to:
- Home renovations
- Veterinary bills
- Education expenses
- Vacations and honeymoons
- Wedding expenses
- Paying back a friend or family member
If you need money for any specific reason, it’s almost guaranteed that a personal loan can help you out.
Your Credit Report Will Show More Diversity
Credit reporting agencies love to see that an individual is capable of handling different types of credit and paying different forms of debt. This is referred to as diversity. Having only one form of debt on your report, such as strictly using credit cards, is not necessarily a bad thing, but it will not help your credit score improve.
Responsibly managing different forms of debt, on the other hand, can kick your credit score up a notch.
With this information in mind, you might be less hesitant to apply if you ever find yourself needing a personal loan in the future.