How Personal Loans Add Better Flexibility to Your Finances
Everyone experiences life differently. Despite the best possible planning, the simple fact of that matter is that it’s impossible to plan for everything.
The same goes for paying for the things in your everyday life. Covering costs can be difficult, whether it’s the result of a planned or unexpected expense. As such, there is a possibility that you might need to borrow money to cover life’s surprises every so often.
If your emergency savings or sinking funds are coming up short on an upcoming expense, you may need to consider other financing options. That’s where a personal loan comes in handy. Today, we’ll talk about the advantages of a personal loan, and how it might add some flexibility to your finances.
Personal Loans vs Credit Cards: Who Wins?
In today’s lending landscape, people are tempted to reach for the “magic plastic” more often than ever before. As we’ve discussed before, studies have shown that credit is being used increasingly to cover everyday expenses. However, relying on a credit card might not be the best option when paying for certain things.
Remember: a credit card is a type of loan. Without getting into too much detail, there are some key advantages where a personal loan may be favored over using the plastic. So, we’ll try to be as brief as possible.
Generally speaking, personal loans may have these advantages over a credit card. Such as:
- Lower Interest Rates
- Higher Borrowing Limits
- Predictable Repayment Schedules
If you’re interested in learning more about these advantages, we have a great write-up discussing the benefits of personal loans.
The Practical Applications of a Personal Loan
So, why would one want to take out a personal loan? There are many possible reasons, and we’ll illustrate them with a few hypothetical scenarios:
- Unexpected Auto Repair: Let’s say something happened to your transmission, and now it needs an extensive repair. Your current situation makes financing another vehicle impractical, so you want to commit to the repair.
A personal loan can be used to cover the costs of a car repair. Lending institutions offer loans in lump sums, depending on your credit score. The loan can also be used to cover additional expenses, too, like paying for a tow truck or getting a rental while your car is in the shop.
- Debt Consolidation: Using multiple credit cards can be quick and convenient. On the other hand, depending on your usage habits, a combination of outstanding balances and variable interest rates can result in significant (and even insurmountable) debt.
Consolidate credit card debt with a personal loan. You can allocate portions of the loan to pay off several balances. In such a case, now you are only responsible for paying off the loan, which can potentially have a lower interest rate than your credit cards. This allows you to save money compared to managing several different balances.
- Strengthen Credit History: Your credit score will be important to finance “big ticket” purchases, like a car or house. Taking out a personal loan is a great way to start building up your credit so you can eventually apply for more involved financing products.
A personal loan can be a sensible way to improve your credit score, as long as you make payments on time. Personal loans also contribute to your credit mix (which includes credit cards), which is another factor in determining score.
- Cover Holiday Expenses: The summertime and winter holidays are exciting times of the year. However, the activities you have planned during these times might incur some costs that your savings didn’t account for. A personal loan can help cover those costs.
Whether for a road trip or gifts, a personal loan can provide quick cash for the holidays. Some financial institutions may offer personal loans (popularly referred to as “holiday loans”) with lending limits tailored to these occasions.
Of course, personal loans are fittingly named for a reason. They are disbursed in a lump sum, allowing you to use the funds as you see fit. As long as you repay the loan on time, it’s possible to finance what you need sensibly.
A personal loan may allow some breathing room in your finances. If you’re considering applying for one, it’s always a good idea to be prepared. Think about why you need to borrow money and decide if your circumstances require it.
First Florida has handy tools to help you calculate how a personal loan can factor into your budget. Contact your financial institution to learn more about your financing options.