Using a personal loan to your advantage
Covering life events or unexpected expenses may mean taking out a personal loan. Along with being a simple way to obtain funding, borrowing may also help you improve your financial situation in other ways. Keep reading to learn more about using a personal loan to your financial advantage.
Pay off high-rate debt to gain more financial flexibility
One way to use a personal loan is to consolidate high-interest debt. By reducing or eliminating some of your financial obligations, you won’t have to worry as much if unexpected expenses hit. This could help you stress less if you live on a tight budget. Paying off balances with high, variable rates (like those of credit cards) with a fixed-rate loan can often save you thousands of dollars in interest fees.
Build your credit history
Making on-time loan payments could help your credit score. If the lender reports your positive payment history to credit bureaus, you create a track record of being a reliable borrower. This may increase your credit score over time and help you secure better rates if you need to borrow in the future.
Get peace of mind with predictable payments
With the fixed rates and terms of personal loans, your payments are not changing constantly, as they would with the variable rates of credit cards. As a result, you have predictable payments that are easy to work into a budget. You know when the loan term ends, and you can take all of that time to repay it or pay it off early to save on interest if the lender does not charge a prepayment penalty.
Mistakes to avoid when taking out a loan:
Not shopping around
It may be easy to choose the first lender that fits your criteria, but it’s not necessarily the best choice. By not looking into more options, you may miss out on better borrowing opportunities. Look for the rate and term that best fit your financial situation.
Not knowing the costs and terms
Before you sign a loan agreement, it should be clear exactly how much your loan will cost. That means factoring in APR and an origination fee. For example, a 5% origination fee on a $10,000 loan is another $500. A loan calculator is a great tool to help you determine how much loan you can afford before you finalize anything.
Borrowing too much
It’s important to do the math so you don’t request a loan amount that’s higher than you need. If you do, you’ll pay extra in interest and run the risk of not being able to handle the financial obligation of monthly payments. Your payments should be affordable over the life of your loan, which could be at least five years. Missing payments also negatively affects your credit history, which can have a lasting impact on your ability to get credit in the future.
Want to learn more about getting the right personal loan for your situation? We can help. Get started online or visit your nearest Lendmark branch to talk to one of our experts.