“Loan” doesn’t have to be a four-letter word.
In fact, you can leverage a personal loan to advance your overall financial standing and improve your credit score—whether you need to borrow money or not.
Really Good Reasons to Take a Personal Loan
Debt Consolidation
One of the best reasons to get a personal loan is to consolidate and pay off high-interest debt.
A low-interest personal loan is better than credit card debt for many reasons:
Installment loan vs. revolving account - An installment loan is divided into equal payments, usually monthly, making it easier to budget than a revolving account. Credit cards payments vary each month, depending on the balance and the interest charges.
Lower APR compared to credit card rates - Personal loans generally offer a lower APR, or annual percentage rate, than credit cards and other high-risk loans. So consumers save money on interest charges over the life of the loan.
Simple interest vs. compounding interest- Personal loans are calculated using a simple interest formula. Simple interest is the product of the principal, interest, and time (in years). The simple interest is then added to the principal, or the amount of money being borrowed, and divided by the number of installments. Simple interest is beneficial to borrowers because the interest added isn’t compounded over the life of the loan. Credit card companies utilize compounding interest. That means that the amount of interest accrued each month is added to the principal, so the interest owed the following month is calculated based on the new principal amount. Compounding interest costs consumers more over time, especially if you only pay the minimum payment each month.
Home Repairs or Improvements
Home repairs and improvements are costly, but if they raise the value of your property, they are also a great investment.
Borrowers can leverage a personal loan to:
Add gutters or improve drainage
Install energy-efficient windows and doors
Improve curb appeal with new paint or landscaping
Renovate or upgrade a home office
Create a home gym
Major Car Repairs or Used Car Loans
Car repairs - If you live in a suburban or rural area, your vehicle is your lifeline. You rely on your car or truck to get to work, to take your children to and from school, to go to the grocery store, doctors’ visits, and more. If your car is out of commission, you suffer in more ways than one. Taking a personal loan for a major car repair can be a wise choice when there are no other alternatives.
Used car loans - If you are looking to save money by buying an older used car from a private individual, a personal loan may be your best option. Most banks only offer car loans on vehicles purchased from new or used car dealerships. A personal loan can help you get the car you need at a price you can afford.
Additional Education Expenses
Student loans, especially those funded by government agencies such as FAFSA, usually offer great terms, including no interest until graduation or loan forgiveness for certain circumstances. But if your student loan isn’t enough to cover extraneous expenses, a personal loan can take up the slack.
School expenses for which you might need a personal loan include:
Books, computers, and other educational supplies
Moving and travel expenses
Furniture, small appliances, linens, and other necessities
Unique educational opportunities, such as semesters abroad or research programs
Major Life Events
While it’s best to budget and save money for a wedding or once-in-a-lifetime vacation, it is sometimes worth it to take out a personal loan for major life events like these. New babies, quinceañeras, bar or batz mitzvahs, and milestone wedding anniversaries are other celebrations that warrant personal loans.
Build Credit or Improve Your Credit Score
If you have no credit, nearly no credit, or a low credit score, a well-managed personal loan can improve your credit history, helping you get better interest rates and terms on loans in the future.
Small personal loans, such as $500 to $1000, are perfect for beginning borrowers. Use this opportunity to build your credit history by paying installments on time each month. Take advantage of automatic payments, if possible, to ensure you never miss a payment. And, if you are taking the loan strictly to build your credit or improve your credit score, it would be wise to place the lump sum from the loan into a separate savings or checking account so that you don’t accidentally dip into the money for an emergency or luxury purchase.
Remember, “loan” doesn’t have to be a four-letter word. Personal loans can be used in a variety of ways to enhance your life and the lives of your loved ones. As long as you use your personal loan responsibly, it can even improve your credit rating over time, saving you money on interest in the long run.
If you are interested in obtaining a personal loan, contact the loan experts at AMG Finance. They can help you determine how a personal loan can serve you.
