Top 5 Reasons to Choose a Personal Loan
In
this time of financial uncertainty, more and more people are reaching out to
their family, their friends, and even to people they don’t even know when they
need a loan. Some of these people think it’s easier to get money, while
others have become suspicious of banks and other lending institutions. Whatever
the reason individual borrowers give, there’s no doubt that personal are making a comeback. If you feel
skeptical about jumping into one, here are some things to think about.
1.
Fixed Repayment Time Frame
If
you’re thinking about using a credit card instead of getting a personal loan,
think about this: most personal loans have fixed repayment terms, while minimum
credit card payments are designed to keep you in debt longer. Most personal
loans have a term of 1, 2, 3, or 5 years, and when you’ve made all the
payments, you’re done. You can go into the process knowing exactly how long
your debt will take to pay off, instead of watching it stretch into the future.
In
addition, some personal loans can be paid off early without a penalty for
prepayment. Many loans via financial institutions have this penalty, and thus
are designed in the best interests of the lenders, not the borrowers.
2.
No Collateral Necessary
Considering
a home equity loan or another traditional type of loan through an institution?
You’ll definitely need collateral. Whether this is your house, as with a home
equity line of credit, your car, or something else of value, traditional
lenders ask you to put something on the line in case you can’t repay the loan.
Personal loans, though, don’t require this, so the valuable possessions that
you’ve worked so hard to obtain are not on the line. However, be aware
that your credit history will most likely be damage significantly if you
default on a personal loan.
3.
Get Rewarded for Good Credit
Many
loans that you can get via traditional means, as well as credit cards, have standard
interest rates. No matter how good your credit is, you’ll pay the same amount
of interest on your loan as someone with a poorer credit history. This is not
so with personal loans. These loans offer a variety of interest rates, and
you’ll be rewarded with a lower one of your credit score is high. That means
you’ll pay back less money overall and there will be more in your pocket along
the way.
4.
Fixed Rate = Fixed Payment
In
addition to offering lower interest rates for good credit, the interest rates
on personal loans are fixed. Once you’ve qualified for a low rate, it’s locked
in for the life of the loan. This separates personal loans from both credit
cards and lines of credit, where the interest rate can go up or down at any
time.
Having
a fixed rate means that your monthly payment is fixed, too. This allows you to
accurately plan ahead and include your loan payments in your budget, knowing
that the amount won’t suddenly skyrocket and leave you scrambling for cash.
5. A
Personal Loan Makes Things . . . Well . . . Personal.
When
you take out a personal loan from a direct lending network like Lending Club,
there’s no big financial institution behind the money that you get. There are
just people like you who happen to have money available and who are willing to
consider your need as their own investment. This adds motivation for making
your payments in full and on time, because your money is going toward
individuals with names and faces, not to a bank or a large corporation.
Even
if you’re not a financial guru, you can see that this is a game-changer. With
many people feeling suspicious of large institutions, personal loans allow you
to take them out of the equation entirely and still get the money you need.
These
are only a few of the reasons why you might want to consider a personal loan
instead of a credit card, a line of credit, or a traditional loan the next time
you need money. Not only will you get a better financial deal that way, but
you’ll get rewarded for your good credit while connecting with investors
instead of feeling anonymous and at the mercy of a large institution.
Have
you participated in a direct personal loan, either as a
borrower or an investor? We’d love to hear about your favourite part of the
experience in the comments.
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