What Is A Benefit Of Obtaining A Personal Loan?
Matt Cardwell4-Minute Read
UPDATED: July 26, 2023
Taking out a personal loan can benefit you beyond just the lending of cash. If used responsibly, personal loans can provide borrowers with a number of advantages and gains to their finances and credit.
The article below will discuss the advantages of taking out a personal loan, and explain how these benefits can work in your favor.
Obtaining A Personal Loan
A personal loan can be a great financing option for a borrower with good credit who needs money quickly. You can typically borrow anywhere from $2,000 to $45,000 with a personal loan, depending on the lender.
Getting a personal loan involves a relatively straightforward application process in which lenders observe your credit report and debt-to-income ratio (DTI). These can factor heavily when determining your rates and terms for the loan.
Benefits Of A Personal Loan Over Other Loans
Obtaining a personal loan can mean more for a borrower than getting a substantial cash loan. Compared to other types of loans, you may see various benefits from using a personal loan for your financial needs.
Let’s take a look at some of these advantages below.
Personal Loans Can Have Many Uses
One major benefit that a personal loan can have over other types of loans is its versatility. Unlike a mortgage, auto loan or student loans, a personal loan can be used for many different purchases and expenses.
Some of the most common reasons for personal loans include:
- Consolidating your debt: You can use a personal loan to pay off your outstanding debt and consolidate it into a single monthly payment.
- Home improvement projects: A personal loan could cover all or most of the costs for a big home improvement or remodeling project.
- Emergency expenses: If you don’t have an emergency fund, a personal loan can provide cash fast to help with unexpected emergency expenses.
- Other large purchases: A personal loan can be used to finance a special occasion like a wedding, or a fun purchase like a boat.
You Can Get Your Money Fast
Typically, personal loans can take less time to pay out than some other loans. On average, you can expect to receive your loan in 1 – 7 business days.
Some personal loan providers, like Rocket LoansSM, can even get you your money on the same day you’re approved with same-day funding.*
You Can Build Up Your Credit Score
Taking out a personal loan can affect your credit score in a positive way. Your score may drop slightly as a result of a lender’s hard inquiry, but making regular on-time monthly payments can demonstrate your creditworthiness and improve your score so that you could get even better rates and terms with future loans.
Additionally, having a personal loan among your other debts can diversify your credit mix, and using one to pay off your credit card balance can help lower your credit utilization rate.
You Get A Fixed Repayment Schedule
When you take out a personal loan, your monthly payments are based on a fixed rate. This means that your monthly amount, as well as the interest rate you’re charged, will remain the same month-to-month. If you’re approved for a lower interest rate, it’ll stay that way for the life of the loan.
As opposed to a credit card, where your monthly amount can change depending on how much you spend, personal loan payments can be much more predictable.
Personal Loans Don’t Require Collateral
Obtaining a personal loan will primarily come down to your credit score and your DTI, so lenders won’t typically require any collateral to secure the loan. Unlike with secured loans, borrowers aren’t risking losing valuable assets in the event you fail to repay the loan.
When Is A Personal Loan A Good Idea?
If you have a good or excellent credit score, a personal loan could be a great answer to your financial needs. Approval and interest rates will depend heavily on your creditworthiness, so use your score to judge if you should get a personal loan.
If your credit isn’t good or excellent, take some steps to improve your credit score so that you could apply for more favorable rates and terms.
Pros And Cons Of Personal Loans
As you’ve seen above, there can be numerous benefits to taking out a personal loan. Let’s review them here, while also pointing out some of the drawbacks.
- Personal loans can have flexible and versatile uses.
- You can receive your money quickly.
- Personal loans can help improve your credit score.
- Personal loans have fixed rates and predictable repayment schedules.
- No collateral is required for a personal loan.
- Having a lower credit score can lead to higher interest rates.
- A defaulted personal loan stays on your credit report for up to 10 years.
- Having a low credit score may cause a lender to require collateral.
Taking out a personal loan can potentially be beneficial beyond just receiving a large amount of cash. If you’re smart about your finances, and repaying your debt, you can come out the other side of your loan even better off than before.
Apply online today with Rocket Loans to see what rates and terms you may qualify for.
*Same day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.
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A Quick Guide To Different Types Of Personal Loans
Before applying for a loan amount, it’s important to understand the different types of personal loans. See which personal loan type is right for your situation.
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Refinancing a personal loan can give you a lower monthly payment to manage. Learn how to refinance a personal loan, when you should refinance and when to wait.