Dramatic changes in technology and increasing accessibility of credit services have caused a rapid growth of personal loans around the globe. Recent statistics show that personal loans are the fastest growing loan category and for a good reason, they give you the freedom to achieve your personal goals and also help you to save money.
What are personal loans?
These are unsecured loans that borrowers take to meet their personal needs. In addition, personal loans offer competitive rates and don’t require any kind of collateral.
Most loans such as; auto loans, mortgages and student loans can only be taken for a specific purpose. Personal loans are different from other types of credit options since they are not tied to a specific use.
Individuals can take personal loans to fund; unexpected expenses, home improvements, wedding costs, debt consolidation, etc. Generally, you can use personal loans for almost any reason under the sun.
They are extremely beneficial financial products that can save you money in the following ways.
Consolidating high-interest debt is a key factor in saving money. It is also one of the most common (and smartest) reasons individuals take out personal loans.
Personal loans usually have lower interest and can, therefore, help you tame multiple high-interest loans. According to the Federal Reserve, the average credit card APR is 20%, while the average personal loans APR is 7%.
This means you can pay off your credit card debt all at once and channel them to a single monthly payment at a lower interest rate. The interest savings in debt consolidation with personal loans significantly save you money and improves your cash flow.
Huge unexpected expenses such as; medical, car and home emergencies can wreck your budget and completely derail your finances.
You can use personal loans to avoid expensive debts in emergencies since they have lower interests than credit cards and many other types of loans. Personal loans are also more practical than credit cards because you can qualify for a higher loan amount.
In addition, personal loans are fast and easy to secure, making them highly beneficial for unanticipated expenses. Some personal loans can even be done at the comfort of your own home. You can access your funds as soon as the next business day with Bonsai Finance after an online application process.
Improve your credit score
Replacing your credit card debt with a personal loan lowers your credit utilization and improves your credit score. If your credit utilization is high, your lender may consider you a high risk. Your credit utilization will be measured by comparing your credit limit to your spending.
For instance, if you are spending close to your credit card limit every month, lenders will consider you a high risk. Furthermore, any missed loan payment that is later than 30 days will impact your credit score and attract late fees. You can use a personal loan to avoid missed payments on other types of loans or credit card damage.
Personal loans are cheaper, fast and easy to secure so you can use them to ensure your payments aren’t late. It is important to note that a good credit score saves you a lot of money in the form of lower interest and a lower down payment when applying for bigger loans such as a mortgage.
Personal loans are flexible in nature which means they can help you ditch high-interest rates. Discuss the details of your loan with your lender to attain a personal loan with the best rates and terms. You can negotiate for lower interest rates, rule out additional fees and choose a suitable term for you (personal loan terms usually range from 1-7 years)
Personal loans can be used to finance a big one-time expense. This can be key life events such as a wedding, honeymoon, engagement ring, vacation, moving or even home improvements. They give you more time to pay off for your one-time expense and are cheaper than other lending options.
Personal loans are not only a real solution to life’s goals and obstacles, but they are also a helpful financial tool that smart borrowers can use to save money.