If you are seeking short-term credit you have several options you can choose from. Payday loans, credit card advances, bank overdrafts, and personal loans all offer their own advantages and drawbacks. When looking to borrow it is always recommended to weigh all options available before agreeing to anything.
Smart borrowing is the key to eventual financial independence. No one wants to be buried in debt but without debt or credit, your lifestyle and living standard can all be affected. Credit offers you the ability to get what you need today and pay for it later.
However, it is important that you know your limitations when it comes to spending. Living on your credit card can have severe implications on your finances as the cost of borrowing, especially, on credit cards can increase exponentially even if you are able to keep up with the minimum payments.
Credit card advances and overdrafts can all eventually cost a whole lot more than other short-term credit options available such as payday loans or personal loans. So let us look at whether a payday loan might be a more viable option for your short-term credit needs and its associated benefits and drawbacks.
What Is A Personal Loan?
A personal loan can be obtained from a bank, credit union or online lender and is essentially a fixed amount of money that has a fixed interest rate attached to it as well as a fixed repayment schedule. The payback period for personal loans can vary as personal loans can be offered on both a short-term and long-term basis depending on the amount of the loan requested.
Is Securing A Personal Loan A Good Idea? Why?
Securing a personal loan over other short-term or long-term credit options available may be beneficial to you in a number of ways. A personal loan can be granted in quick time, especially, from online lenders and have shorter repayment periods as compared to traditional loans that can eventually cost a lot more in the long-run.
Personal loans also do not impact your credit score as drastically as other types of loans. Credit cards are notorious for badly impacting your credit score especially when close to the limit. The interest rates you pay on credit cards even when meeting minimum payment requires can add up to huge borrowing costs as well as severely impacting your overall credit score.
Personal loans are also great because they do not come with any restrictions on how you can use that loan unlike mortgage and student loans. Whether you need the money to start up a business or take a vacation personal loans can be used for whatever you want and give you the liberty to take risks that you wouldn’t take otherwise.
Many people also assume that personal loans can cost a lot more than other traditional loan types. However, this is not the case. Personal loans at first glance can seem to have a huge annual percentage rate (ARP) associated to them but when compared to other forms of short-term credit the real cost of borrowing on a personal loan can, in fact, be much lesser than you would think.
The cost of borrowing or interest rate on personal loans can also be significantly lower than other forms of short-term credit, especially, if you have an excellent credit score. If you don’t have a great credit score securing a personal loan may not be advisable as the interest rates offered by the lender are likely to be much higher than other available short-term credit options. However, online lenders can still offer personal loans at reasonable interest rates even if you have a bad credit score.
It always pays to shop around. One excellent resource for acquiring short-term credit is Personal Loans Online by Personal Money Network. They offer market competitive terms on many types of loans including personal loans and have a quick and easy process with several payment options and borrowing terms available to choose from.
Unlike payday loans, credit card advances and bank overdrafts a personal loan can be taken from the same lender multiple times and you can take as many personal loans as you want from multiple lenders. Of course, this is never recommended but it shows just how easy it is to secure a personal loan, especially, if you have an excellent credit history.
Best Ways to Use Personal Loans
Personal loans are an ideal solution to your financial problems when it comes to dealing with a variety of circumstances. These include:
- Credit Consolidation
The most common use of a personal loan is to pay off existing credit card bills that are at their max limit from different providers. By consolidating all your debt you are only repaying one lender instead of repaying multiple lenders with varying interest rates and credit terms. Personal loans, in this case, can be hugely advantageous as it allows one to pay-off all existing debt from various lenders and now have only one lender and one payment plan to worry about.
- Refinancing Student Loans
If your student loan interest rate is higher than the rate being offered to you as a personal loan it might be in your best interest to pay off all your student debt and then simply pay the personal loan amount off on a lower interest rate. This, in turn, helps you save money but before you decide on taking on this option it is always best to consult with a tax lawyer as student loans do come with several tax benefits.
- Improve Your Credit Score
If you currently only have credit card debt adding a personal loan can help your account mix which could prove favorable to your score. It can also help lower your credit utilization ratio as you now have a lot more money available on credit that you need. This helps bolster your credit score.
A personal loan can also be quite beneficial when you need a substantial sum of money to pay for an upcoming wedding, vacation, or to finance an expensive purchase. Smart borrowers always consider all options and select the one that proves the most beneficial for their immediate borrowing needs.