Personal loans have become popular over time. During 2017-2019, there has been a 15% increase in payday loans in the U.S. One of the key reasons behind the popularity of personal loans is the easy application and approval process. You can get personal loans approved online or through mobile apps in a hassle-free manner.
Generally, personal loans are unsecured debts with a tenure of 3-5 years. Taking a personal loan is a smart way of consolidating debt and reducing your cost of borrowing.
Use this guide for answers to commonly asked questions about payday loans and the impact they can have on your credit report and situations in which taking a personal loan makes sense.
For Debt Consolidation
The most common reason for taking a personal loan is debt consolidation. If you plan to pay off your debt shortly, then taking a personal loan for doing so makes sense. You should explore the different personal loan options available in the market. The interest rate for a personal loan should be less than that of your outstanding debt.
If you have a good credit score, you will be able to bag great deals on personal loans. This will help you to save on your interest payment and also clear the dues faster. You must have a clear roadmap of how you plan to repay your debt. If you don’t have clarity about the same, you will end up having an additional personal loan that will push you further into the vicious debt trap.
Your Spending and Financials are Under Control
While consolidating your debt through a personal loan is a good strategy, it does not automatically clear your dues. It is only a way to move around debt and reduce your cost of borrowing. Taking a personal loan makes sense only when your spending and financials are under control.
If you are still in the habit of overspending and your finances are not well-managed, then taking another debt in the form of a personal loan is not recommended. It will only push you deeper into debt and make your journey to becoming debt-free even more difficult.
Your Credit Score is High to Get Competitive Credit
If you want to take a personal loan, you must ensure that you are getting it on competitive interest rates. Taking a personal loan will make a lot of sense if you can get it at lower interest rates to consolidate debt.
Your credit score will largely decide the terms on which you may get a personal loan. If you have a high credit score above 760, then you will be able to get personal loans on favorable terms. You may also get personal loans with single-digit interest rates with a high credit score. As you will be repaying your loan on time, it will positively impact your credit score.
When You Don’t Have 0-Percent APR Credit Card
If you have a high credit score and plan to consolidate your debt, then you can consider a 0% APR balance transfer credit card debt. When you opt for the 0% APR credit card, you must have a plan to repay the debt.
Otherwise, there is no point in taking the credit card as you will move further into debt. You will have debt accumulating from your existing loan and the 0% APR credit card that you have taken. Hence, you should prepare a detailed plan for repaying the loan using 0% APR credit card otherwise the move may backfire.
Personal loans can help consolidate debt and move out of debt. You should assess your financial condition and consult a credible financial advisor before taking a personal loan. You can compare many online lenders and check loan terms. There are many types of loan, a popular loan is with monthly payments.