Imagine a staggering medical bill hits you suddenly. Your plumber gives you an estimate to repair the entire plumbing system in your house that costs more than your child’s tuition fees.
You can’t use your credit card because it has already maxed out. In this situation, can you take a further loan to solve your problems? Possibly. If you take a personal loan. It allows you to pay significant expenses when you are short of cash. In fact, it can also improve your credit score so that you don’t have issues opting for loans later.
Understanding personal loans
Unlike home loans or car loans, you can use personal loans to spend on anything you want. For example, you can take a personal loan to pay that staggering medical bill or repair your home’s plumbing system. People prefer personal loans because they have lower interest rates compared to credit cards. This allows them to pay credit card debts or other debts with higher interests. Another advantage of a personal loan is you don’t have to keep any collateral.
People call these loans unsecured loans because they don’t have to put any collateral while opting for the loan. However, the interest rates for personal loans are higher than secured loans, such as home loans or car loans. You can compare the interest rates from different lenders before taking a personal loan. unsecuredloans4u, for one, offers significantly low rates for personal loans, making it a favorite for people who need urgent cash in hand.
Personal loans and credit score
It is a myth that personal loans cannot improve your credit score. Remember, personal loans and payday loans are not the same. Online lenders offering payday loans don’t check your credit history. Therefore, these loans don’t necessarily improve your credit score. But, personal loans can. Here’s how a personal loan can help your credit score.
Making a better credit mix
Having different types of credit can boost your credit score to a great extent. Consider your personal loan as a monthly installment. This will enable you to pay it off timely. Financial institutions check if you have revolving credit or not. For example, if you have personal loans, credit cards, etc. If you do, and you pay them on time, you will not face any challenges while applying for loans in the future.
Reducing the credit utilization ratio
A personal loan doesn’t butt in into your credit utilization ratio. This means you can use your personal loan to pay off credit card debts to improve your credit score. It is the appropriate way to make revolving credit. You need to keep moving from one loan to another by paying off the previous one. Personal loans allow you to do that.
Creating a positive payment history
Paying off your personal loan timely establishes a positive payment history. Banks and other financial institutions check not only your credit score but also your payment history before sanctioning a loan. You can use your personal loan to best effect to improve your credit score and payment history.
Don’t be afraid to take a personal loan. It will not become a burden if you have a repayment plan ready.