Photo by Alexander Mils
Regardless of what you may have heard from others, debt is not an evil thing. When used properly, it can be a great tool for either improving or making your personal finances easier to manage.
People who are financially responsible use credit cards for everyday expenses like groceries and gas. They also may take out secured auto loans and mortgage loans in order to purchase cars and homes they may never be able to pay for in full with cash.
It has become increasingly more popular for people to turn to online lenders for unsecured personal loans. When compared to other alternatives like traditional bank loans, credit cards, and payday loans, unsecured personal loans online have several key advantages.
Let’s dive in and look at some of the benefits of unsecured personal loans and some of the reasons you might want to think about using them.
5 Key Benefits of Getting a Personal Loan Online
Why should you choose to take out a personal loan online instead of other potential choices? Consider the following benefits, but keep in mind that the ideal personal finance product for any situation can depend on many different factors. This could include borrower credit, income, assets, employment, preferred terms, and the purpose of a particular loan. In some cases, your credit history may not matter when considering using a bad credit loan company.
1. Potential for a Higher Loan Amount Than a Credit Card
While people with exceptionally good credit may be approved for $10,000+ with a premium credit card, most people will not qualify for these types of credit cards. People with “good” credit may qualify for around $2,500 to $10,000, while people with bad credit or lower credit scores may only qualify for $300 to $5,000 max.
That being said, borrowing limits for personal loans are usually higher than what you can get with a credit card. While borrowing limits may vary by each loan company, most lenders will max out around $10,000 to $15,000 while a few may go as high as $40,000. In either case, you will generally always be able to obtain a higher credit amount from a personal loan than a credit card.
Similar to personal loan companies, credit card issuers may use many factors when determining a spending limit for applicants. Most of these are taken from consumer credit reports:
– Debt to Income ratio
– Credit score
– Payment history with other loan or credit card accounts
– Employment history
– Derogatory items like bankruptcies or late payments
– Credit inquiries (how often and how many)
2. Easier Approval For Online Personal Loans
Especially for people with poor credit, it may be difficult or impossible to get approved for a credit card. This doesn’t mean you can’t have access to unsecured credit though. There are many online personal loan companies who will approve you for an unsecured loan, even if you can’t seem to get approved anywhere else.
If your credit score is low, then you may consider getting a bad credit loans through an online lender. Regardless of your credit history, you can get approved for a personal loan online with no credit check!
3. No Requirement For Collateral
Unsecured personal loans don’t require you to secure any assets to the loan as collateral. While the consequences of not making your payments on an unsecured loan will be very negative, you don’t have to worry about losing your house, car, or some other asset that is important to you.
4. One Personal Loan Is Easier To Manage Than Multiple Credit Cards
Getting a single loan, with a fixed interest rate and a defined loan amount is much easier to manage than having multiple credit cards, all of which may have different credit limits, interest rates, due dates, policies, etc. So if you need to borrow $10,000, wouldn’t it be much simpler to apply for a single personal loan of $10,000 as opposed to getting four credit cards with $2,500 credit limits each?
5. Well Defined Repayment Schedule
When it comes to personal loans, there’s never a question about what the fixed interest rate, repayments terms, and monthly payment amount is. When you’re approved, you’ll know exactly how much you’ll need to repay each month, how many months you’ll need to make those payments, and what your total interest cost is over the entire loan period.
Credit cards are not nearly as predictable. The only thing that typically doesn’t change is your monthly payment due date. The required minimum monthly payment amount depends on what your balance owed is, and your interest rate could easily change since it will almost always be linked to a benchmark like the prime rate.
Top 6 Reasons to Get a Personal Loan
1. Refinance Existing Debts or Bills
Often times, personal loans are used as debt consolidation loans that are taken out specifically for the purpose of consolidating credit cards and other loans into a single personal loan, often times at a lower interest rate. A debt consolidation loan is easier to manage, more predictable, and may have lower monthly payments.
It may be that you’ve fallen behind on some bills and are needing an easy way to get everything caught up. It’s so easy to get short term loans online, you could easily bring everything current and have one simple monthly payment.
2. To Finance a Major Purchase
An unsecured personal loan may be more suitable for you to use for some major purposes than a credit card. Often times your interest rate will be better on a personal loan, especially if you won’t be able to pay off the amount before a potential promotional period on a credit card expires. The vendor you are purchasing from may not accept credit cards. A personal loan may also provide a higher approval amount if the purchase price is greater than your credit card limit and you don’t want to open multiple credit card accounts.
Some examples of these major purchases could be:
– Purchase of an automobile
– Home improvement (especially if you don’t have enough equity in your home to qualify for a home improvement loan)
3. To Pay For Unexpected Major Expenses
Sometimes you may encounter a large expense that you aren’t ready for, but it is required and must be taken care of immediately. Some examples are:
– Major medical bills
– Vehicle repairs (either not covered by insurance, or you have a high deductible)
– Emergency home repairs like a hot water heater or your heating or air conditioning unit
Some online personal loan companies can fund your loan the same day or at least by the following business day. This is much faster than getting funds from a regular bank.
4. To Finance a Wedding
Generally, many different expenses will come up during the months of planning and preparing for a wedding. In some cases, reservations for some catering and venues will have to be made at least a year ahead of time. Engagement rings will very likely come well in advance of the wedding too.
It may be a good idea to go ahead and take out a personal loan for all wedding related purchases, and then setting the proceeds aside in a separate checking account to be used exclusively for all wedding expenses.
5. To Adopt A Child
Kids, in general, are expensive, but adoption can require many upfront expenses.
Some of these expenses may include legal fees, travel and lodging if the child is in other city, medical expenses, application/administration fees, and possibly other expenses as well.
6. To Expand a Business
If you need money to help you expand your business, you could apply for a personal loan as long as the loan amount will be large enough to cover your business expansion costs. However, if you need a larger amount, you may want to consider getting a business loan online. The requirements are usually pretty simple, as compared to a traditional commercial loan at a bank. You’ll generally need to have been in business for at least 6 months, can provide bank statements, and possibly some other documentation that should be pretty easy to provide.
While the above benefits and reasons are some great examples for taking on new debt through a personal loan online, obviously they’re not the only reasons to get a new loan. It could be anything!
Also, for whatever its worth, personal loan companies are just as anxious to approve your loan as you are to receive your cash! It can be a win-win situation for all involved. The important thing is to understand what you are needing and how a personal loan may be the best option for you to meet your financial needs.