Whenever you are in a financial trouble and you have no
source to finance it from your own, you will either ask your friends and family
or you will reach up to a financial institution.
It is not a good habit of
asking and bothering your friends and family. It will be better to reach up to
a bank or a non banking financial company (NBFC).
Reasons To Get A
Loan
- To consolidate debts, reduce monthly payments, and get
debt free quicker
- The interest rate you pay on a personal loan is also
usually fixed
- It is a more structured way of covering unexpected
costs like a vets bill or car repair
- Good deals are available by comparing online lenders
- Loans for home improvements can increase value of your
home
- Reinvestment into your business can help increase your
income
- Loans can help put you in a stronger financial position
- It can improve your credit score
- By paying off loans on time it demonstrates to future
lenders your ability to pay off debt
- It can help you avoid taking other credit options which
are harder to control, i.e. it is easy for debt to escalate with a credit
card where there is no fixed repayment plan
Reasons Not To Get A Loan
- Saving is a better option in many cases
- Excitement of special occasions (wedding) or big
purchases (car/holiday) can cloud your judgement
- Too much debt can affect your credit report
- You maybe tempted to borrow more than you need
- It’s a medium to long-term financial commitment
- Late payment fees can be costly
- It can weaken your financial position
- Loans, especially when they are poorly managed, could
affect your chances of getting other credit in the future on something you
might need more (such as a mortgage or car)
When Credit Cards Are Better
Ask yourself how often you need
credit, how much you’ll need, and do you have the discipline the pay the debt
off.
Some credit cards offer great
interest rates and, if you can regularly pay off the balance in full, you won’t
incur any scary interest or fees. Some credit cards even offer 0% interest on
balance transfers so you maybe able to consolidate debt and pay it off quicker
than a loan.
When Loans Are Better
Credit card companies make a lot of
money off people who end up only paying off their minimum payments each month.
It is a well-publicised reason why so many people have got into unmanageable
debt.
Also the higher the credit amount
the harder it is to keep the discipline of paying off a credit card, especially
if you are struggling financially one month or are looking to make a big
purchase.
Therefore a loan is a more
conscientious financial decision that provides you with a more structured
repayment plan, so your debts don’t escalate out of control.
The Difference Between Unsecured
Personal Loans And Secured Personal Loans
Unsecured loans are supported by
your creditworthiness rather than by collateral. Unsecured loans enable you to
borrow money without offering up security – such as your home or car. If you
miss payments then it will affect your credit rating and will cost you money in
fees, but you aren’t at risk of losing your house/car.
A secured loan uses a valuable asset
of yours as collateral for the loan. Secured loans are generally higher in
value, over longer repayment terms and at cheaper interest rates. But if you
regularly miss payments and/or cannot pay the loan back, the creditor could
take possession of your asset.
Choosing The Right Personal Loan?
There are many options to find
a personal loan that suits you. Research the lowest interest
rates and whether the loan has any hidden costs.
The Money Saving Expert recommends
you borrow as little as possible and repay as quickly as possible as borrowing
too much can cause debts to spiral out of control especially if something
unforeseen happens like losing your job.
How To Get A Personal Loan?
If you have decided that a loan is
the best option for you, then it’s important to make sure you get the best deal
when applying. Read our guidance page on how to get a loan.
