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Couple high fiving after Obtaining a Personal Loan

Benefits of Obtaining a Personal Loan

Personal loans enable you to quickly obtain money for emergency expenses, planning large events, and even debt consolidation, making them one of the best loans someone can apply for when they are in a pinch. 

This article will detail the key benefits of obtaining a personal loan, why they matter, and things you should consider before applying for a personal loan. 

What Is a Personal Loan?

A personal loan is a type of installment loan. A fixed amount of money that is paid back in monthly payments through the life of the loan. The account is closed only when you have paid back the loan in full. This will then allow you to apply for a new one. 

Personal loan amounts vary depending on where you obtain the loan but can be from $1,500 to as much as $100,000 based on your credit score, income, and ability to pay it back. 

So, what are the benefits of obtaining a personal loan?

Consolidating High-Interest Debt

One of the most widely used benefits of personal loans is to consolidate high-interest debt. If you have multiple credit cards that have a large amount of debt and keep collecting a high level of interest every month, you can take out a personal loan to pay off all the debt across cards.

For many people this helps as now you only have to make one payment to the same place with a fixed payment each month, and a fixed end date. 

This is an amazing option, especially if your credit cards have a high-interest rate. This can help you pay off your debt faster and save you a lot of money over time.

A personal loan is great for consolidating any kind of debt since it will decrease the number of payments you have to remember every month, consolidating it into one easy payment on one specific day. 

Emergency Expenses 

Things happen in life, and sometimes you are not prepared for them. If you find yourself in need of access to emergency funds, a personal loan can be a quick, easy way to obtain them. 

While rainy day funds are great, many people may find that they have not had the chance to build this part of their savings account yet, and even a small, unexpected expense can wipe it out. 

Emergency funds can cover unforeseen car repairs, important appliances that have broken, and medical bills without completely consuming your savings account, which can leave you vulnerable and at risk of becoming even more in debt if any other unforeseen circumstances pop up. 

If you obtain a personal loan for these, it will help you cover the costs you must cover while also leaving a cushion in your savings for other potential bills. 

Help Build Your Credit Score

Building up your credit score can be tough for anyone, especially for people who have bad credit, or do not have well-established credit. 

A personal loan may be able to help you with this. 

Taking out a personal loan can help you with many aspects of your credit score, including your credit mix, which is the type of credit you have money borrowed in and accounts for 10% of your FICO score, according to Forbes Advisor, as well as your credit utilization ratio, and length of your credit history, accounting for 15% of your credit score. 

When taking out a personal loan, it is important to note that your credit may dip, but it will not last. If you pay back the loan on time every single month, your credit score will build. 

Although a personal loan is amazing for building credit, if you do not already have good credit, and do not have the funds to pay it back every month, you should be cautious of the interest rate charged.

A high APR and fees can end up putting you in a situation where you may not be able to pay back the loan, which will, in turn, damage your credit even further. 

Most lenders will report your payment record to the three major credit bureaus- Experian, Equifax, and TransUnion. This is important because if you pay back your loan every month on time, this will help your credit so much, allowing you to have better options for loans in the future. 

Payment history accounts for 35% of your FICO credit score, according to Forbes Advisor, which means that it can damage your score if you routinely make late payments or default. 

Competitive Rates

As mentioned, the rates for a personal loan will vary depending on where you obtain your loan. The usual rate can range from 3% to 36%, with the most competitive rates being reserved for the high-qualified applicants mentioned previously.

If you are wondering if you can get a loan and what the APR may be, you can try to prequalify with some lenders to see what kind of rate you may be able to get.

Ability To Borrow Large Sums of Money

Other forms of credit, such as credit cards, do not allow you to borrow a very high sum of money. For many, credit cards will have a low monthly limit, which will make it hard to finance large purchases with them. 

Personal loans will vary depending on where you obtain them, but many are for around $1,000 to $10,000. Some lenders may offer smaller amounts, and some may even offer up to $100,000. Additionally, these loans will have lower interest rates than credit cards. 

Simple Fast Loans offer installment loans of amounts between $200 to $3,000 depending on your creditworthiness and state laws. 

Flexibility 

A personal loan is highly flexible and can be used for anything you need. While other types of loans are for specific things, such as car loans for cars, and mortgages for homes, personal loans can be used for a wide range of things. This allows you to use it for things like starting a business, consolidating debt, or planning how to finance your dream wedding. 

The Fast, Easy Application Process

The application process to obtain a personal loan is fairly short and will require the lender to ask you a couple of questions. Some lenders may require additional documents, such as proof of income, but many times, you can get a decision made in a matter of minutes, and have the loan in your pocket within days, if not hours.

Predictable Payment Schedule

Another advantage to obtaining a personal loan is that the term of the loan and the interest rate you get is fixed. This is the set amount you must pay overtime, which will make it easier for you to plan your finances going forward.

While other forms of credit, such as credit cards, have a revolving monthly payment that changes every month depending on the amount you spend, a personal loan is more predictable and will prevent you from any surprise high charges some months that you may struggle to pay back.

Home Improvement Projects

Much like emergencies, you may find yourself having to launch yourself into your next big home improvement project.

Whether it be fixing something that broke or even just improving a part of your home you want to improve, a personal loan will allow you the freedom to do so while not worrying about having the exact amount ready when you start a project, since you can pay back the loan over time.

Things To Consider Before Obtaining a Personal Loan

Although personal loans have a plethora of uses and benefits, there are some things that you may want to consider before doing so.

While the rates for personal loans are fantastic, many of the best rates are reserved for those with amazing, spot-free credit scores. Each lender will look at your credit history and credit length in order to determine your creditworthiness.

Lenders will also have a pre-approval process, which will allow them to determine, without consequences, if you are eligible for this good rate. This will be a soft inquiry, which does not impact your credit score.

If you have bad credit, you may still get the loan, but you may have a higher interest rate than those who have good credit scores.

If you do obtain a loan with a less than satisfactory credit score, you will be able to work on building your score up by paying the fixed amount every month.

On top of your credit score, some lenders will also look at your debt-to-income ratio to decide if it is worth it to lend to you since this will help them see if you will be able to pay it back.

You should also consider if you even have room in your budget for a new monthly payment. Although a personal loan for debt consolidation will consolidate multiple payments, people taking out a personal loan for other things may not have room for it in their growing number of monthly payments.

If this is the case, there may be other options for you that will not end up hurting your credit score if you are unable to pay it back every month.

Paying Your Loan Back on Time

This is one of the most important aspects of getting a personal loan, and what will set you up for success in the future. If you do not pay your personal loan back, you will be charged penalties, which will increase the amount of money you owe the lender.

A missed payment is a violation of your loan terms, and will negatively impact your financial standing, as well as your credit.

These things can prevent you from obtaining funding in the future, which would defeat many of the benefits of obtaining a personal loan in the first place.

Where can you get a personal loan?

Traditionally, banks are one of the first places most people go to in order to obtain a loan. Over the last twenty years, however, the number of places you can obtain a personal loan has increased exponentially. 

You can obtain a personal loan through credit unions, online lenders, peer-to-peer lenders, and consumer finance companies. Some of these may be easier for some to obtain through depending on their credit and income.

Simple Fast Loans are a nationally recognized, fully licensed financial service company.

Why the Benefits of a Personal Loan May Be Better Than Other Options

Personal loans can provide needed cash in a short amount of time for a variety of situations, while other credit options, such as a credit card, may have a lower loan amount, and a higher APR.

Additionally, many other loans do not allow the freedom that a personal loan does. If you apply for a mortgage, for example, you can only use it to buy a house, and if you apply for a car loan, you can only use it for a car. If an emergency arises, you cannot use these loans for it.

What Do You Need To Take Out a Personal Loan?

To obtain a personal loan, you will need a couple of things, which may vary depending on the lender. Here are some of the requirements:

  • You must have a valid government-issued photo ID, whether it be a driver’s license or regular ID
  • You must have a valid phone number you can be contacted with
  • You must have a valid social security number
  • You must be at least 18 years or older to receive a personal loan
  • You must have an active checking account where most of your income is located and deposited

Do You Need Collateral for a Small Personal Loan?

Many personal loan lenders do not require an applicant to put up any collateral in order to obtain a personal loan. This is great because it means that you do not have to risk losing something valuable, such as your car or even your home if you end up defaulting on a loan.

This means that these personal loans are considered an unsecured loan type, which may be a higher interest rate than other secure loan types and may be more difficult to qualify for.

Through Simple Fast Loans, you do not need to put up collateral in order to obtain a personal loan.

Financial Freedom

A personal loan can increase flexibility with your personal finances, and you can get them in a short amount of time. If you have been held down by debt for years, it may be time to investigate getting a personal loan in order to consolidate all the debt, and finally feel like you can breathe again.

Final Thoughts 

A personal loan is an amazing opportunity for many people to consolidate their debt, manage a big event, or even pay for an emergency, whether it be health-related or a repair you didn’t account for. But a personal loan may not be for everyone and should be thought about before applying.

Personal loans are great for people who:

  • Have high credit scores that will qualify them for a low-interest rate, since many times these rates will be much lower than credit cards, saving them money over time.
  • Need to consolidate multiple high-interest debts, such as credit cards, auto loans, or school loans.
  • Have a debt-to-income ratio of 36% or less, which will qualify them for great loans with good interest rates.
  • Will not qualify for a 0% APR credit card and will be stuck with high-interest rates for even smaller purchases.
  • Wants to start or finish a large project that will add value to their lives, whether it be starting a new business or adding something to their home.
  • Have room in their budgets for a new monthly payment.

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