When you are looking for loan options, you have a lot of choices. Depending on your situation, a personal loan might be the best choice. There are some definite benefits to getting a personal loan, and here are five of the most important ones.
No collateral needed
Many loans, such as those to buy a house or a car, require collateral — essentially a security to back up the loan in case you don’t pay it back. If you borrow against your house for a home equity loan, for example, the bank can repossess your home if you can’t pay back the loan. With a personal loan, the lender is essentially relying on your word and your credit history to trust that you will pay back the loan. This is a benefit because if for some reason you can’t pay back the loan, you aren’t risking the loss of important property
Lower interest rates
Though personal loans carry higher interest rates than mortgages, home equity loans and car loans, they do have lower rates than some other loans. For example, most personal loans have lower interest rates than credit cards, and they generally have much lower rates than payday loans. The rate you get on a personal loan will depend largely on your credit score. The better your score, the lower the rate you will get.
You typically can get a personal loan in a day or two. There isn’t a lot of documentation involved, so it doesn’t take the lender that long to do the underwriting and determine your eligibility. That is much faster approval than some other types of loans, especially a home equity loan, which requires an appraisal of your house before it can be approved, a process that can take weeks.
Fixed rate and term
One of the biggest benefits of a personal loan is that that payback rate and term are fixed, so you know exactly how long you have to pay back the loan and you know exactly how much you have to pay each month. This can be a huge advantage over a credit card or line of credit, which may have a variable rate that could go up if interest rates go up. Personal loans usually have payback terms of anywhere from 12-60 months, which means you can customize your loan to some degree to come up with a repayment plan that you can afford.
Flexibility of use
Personal loans are among the most flexible loans there are. You can take the money you borrow and use it to pay for a trip or a wedding, pay off other debt, make improvements to your house, go to school or a host of other purposes. This flexibility can be a huge benefit, because your financial needs and situation can change quickly.