Many people find themselves in a situation where they need to request financial assistance from a bank or non-bank entity. This may give you pause for various reasons. For starters, what are the benefits and pitfalls of applying for a line of credit such as a personal loan, a credit card, financial assistance, or an overdraft facility?
The age-old adage: Neither a lender nor a borrower be is not applicable in a practical sense. Most successful businesses, individuals and economies are built on credit-related financing. This is not to say that one should spend with reckless abandon; on the contrary, credit used wisely can help build long-term wealth.
Don’t draw on your credit card – look elsewhere for cash
On a personal level, a decision to apply for a loan is one that should be taken seriously. Your individual circumstances will determine whether you should take that bold decision or not. For example, people with credit card facilities but no cash in hand, may find that a personal loan is a viable option, and one that should be pursued. The reason for this is simple: it is extremely expensive to use your credit card to draw money from your account.
It is far more beneficial to apply for a personal loan if you need cash than simply using a credit card to acquire that cash. Secured loans come with lower rates of interest than unsecured loans. For example, you may find that your personal loan application’s interest rate will be better if you have stocks, bonds, property, equipment, and machinery to back up your loan application.
An in-depth look at personal loans
There is a large global market for personal loans, and not because there are no other options available, because they are unique. A personal loan can be used for a myriad of purposes. For example, the cash can be used to pay for your monthly groceries, an outstanding payment on your automobile loan, repairs, tuition fees, bridge financing, and so forth. The beauty of a personal loan over other options is that they can be secured relatively quickly, and with as little bureaucratic red tape as possible. Of course, there are many requirements that lenders will look for when issuing personal loans, notably your credit score. Some lenders will accept poor credit scores and allocate higher interest rates to those types of loans, while others will reject poor credit scores outright.
Typically, the quick and easy loan application process is followed by a loan approval within 24 hours. The money will be deposited into your personal bank account, or a check will be mailed to your physical address. This is an appealing option to many people, but it’s important to understand the merits and pitfalls of personal loans so that you derive maximum benefit from them. The most obvious benefit of applying for a personal loan is that it can be used for many purposes. You will not be required to provide much in the form of documentation, and the loans are available within days.
Weighing up your options
Since personal loans do not require any security, it is much easier to be approved for a personal loan. This makes them so appealing to borrowers. Lenders on the other hand are susceptible to increased payment defaults since there is nothing securing these loans. Despite all the positives however, there are a few financial requirements when applying for personal loans. For example, you should always shop around for the best interest rates on personal loans. These can range from affordable to expensive, depending on a host of factors.
These factors include your credit score, your employment status, and your overall risk profile. The interest charges that are levied on personal loans are designed as a safeguard against payment defaults by borrowers. Your initial payments on a personal loan are paying off the interest-related charges on the loan, and not on the principal amount. It’s important to read the terms and conditions of personal loans to determine whether you can make part payments, or pay off your loan before the due date.
Are personal loans right for you?
Ultimately, the decision to apply for a loan hinges on your personal financial situation. If there is no other way for you to get the cash to pay for something that you need, a personal loan is the way to go. Remember: when you apply for credit, use the least expensive form of credit at all times. If you have assets to secure your loan (as surety), this may reduce your interest-related repayments significantly, and make the personal loan more affordable. If not, your credit score may help to mitigate the effects on interest-related repayments. Provided you can meet the monthly repayment amounts, a personal loan may just be the best option for you!