What Can A Personal Loan Do?
Sometimes taking on debt can do good things for you. Here are some examples of ways that a personal loan can be used to improve your situation.
Pay Off High Interest Debt
The average credit card has an interest rate of over 17 percent. If you are struggling with credit card debt, you likely have credit cards with interest rates well in excess of that. This is a huge problem that weighs on your finances like a boat anchor.
A personal loan can allow you to consolidate all of this debt into one loan with a lower interest rate. Save hundreds of dollars a year while you pay down your debt with one simple payment every month.
As a side benefit, paying off your cards will improve your credit score by increasing your available credit. Just be sure not to charge them up again.
Start A Small Business
Perhaps you have always wanted to start your own business, even just a part time one. With good credit, you can use a personal loan to set yourself up in business.
The money from this new business could then be used to pay back your personal loan and hopefully start contributing to your monthly income. Thre is always risk involved in starting a new business, but if you are smart about it and have a plan, it could yield big dividends.
Make Home Repairs
Owning a home can be a rewarding thing but it can also be expensive at times. Major repairs like air conditioning replacement can cost you thousands of dollars and you can be hit with them in the blink of an eye. When this happens, not everyone has cash on hand to handle the situation.
A personal loan can help you pay for these repairs right away and then pay on the debt over time. It can be a life saver and potentially a very smart move.
Improve Your Credit Rating
Yes, taking on debt really can improve your credit. This is because your credit rating is a mathematical formula made up of several parts. One of these parts is credit diversity.
Lenders want to know that you can handle all sorts of credit and they like to see a mix of it on your report. If you do not currently have any installment loans, taking out a personal loan could actually result in an increase in your credit score.
Pay For Emergency Health Expenses
Sometimes bad things happen to good people and even with health insurance, you might be holding thousands of dollars in healthcare bills. When that happens, a personal loan can help you settle your debt and pay it out over time.
The power of a personal loan could even save you money on these debts. The ability to access thousands of dollars might allow you to negotiate medical bills down. Many healthcare providers would often rather settle for a lower amount all at once than take payments over time. It could potentially turn a 4000 dollar bill into one that costs you 3000 dollars.
Pay Off Another Loan
Using a new personal loan to pay off an older one might make perfect sense if your credit rating has improved since you took out your original loan.
Let’s say, for example, you have a loan with an outstanding balance of 5000 dollars and 36 months remaining. If you move from a 10 percent interest rate to a 7 percent rate, your interest savings would be over $200 in cash.
Repair Your Primary Vehicle
A personal loan can help you make expensive vehicle repairs and could actually save you money over other options.
When a major repair is needed, you can either pay for the repair or trade the vehicle in. Assuming your current vehicle is paid off, it likely makes sense to pay for your repair over taking on the expense of a brand new vehicle.
In this case, a 2000 dollar personal loan to pay for a new transmission would be better than a $20,000 loan for a new car. You would be able to pay off the loan faster and would still have a paid off vehicle.