There are several advantages to using a personal loan when you need money.
- A personal loan allows you to borrow money for any purpose you choose.
- Choosing a personal loan over hoarding a credit card tab could mean paying less interest and other benefits.
You may reach a point where you need to borrow money, and quickly. At this point, you might be inclined to just swipe your credit cards to cover any surprise expenses that caught you off guard and manage your balances on time.
But before you do that, you might want to consider applying for a personal loan instead. A personal loan allows you to borrow money for any reason. Need to repair your car in the blink of an eye? You can do it. Do you need money to cover your general bills because your job has just been retired? This is also an option.
Personal loans tend to close pretty quickly, so once you’re approved, you could have your money in days. Here is why it could be advantageous to opt for a personal loan rather than falling back on your credit cards.
1. You’ll generally pay less interest
Credit cards are notorious for charging high interest on carried forward balances. With a personal loan, the interest rate you get can be significantly lower, allowing you to borrow for less. This is especially true if you are an applicant with a good credit score.
One thing to keep in mind about personal loans is that they are unsecured, which means they are not tied to a specific asset, such as a home or a vehicle. The better your credit, the more likely you are to earn a competitive interest rate on the amount you borrow.
2. You won’t have to worry about floating interest
Not only are credit cards known to charge a lot of interest, but the interest rate you pay on your balance can vary. This means it could increase over time, making your monthly payments more difficult to manage.
Personal loans, on the other hand, come with fixed interest rates. This means you can more easily fit your monthly payments into your budget because you shouldn’t have to worry about them increasing.
3. You could avoid major damage to your credit score
Each time you apply for a loan, it leads to a thorough investigation of your credit report, which could drop your credit score by five to 10 points. And it is a success that you must anticipate if you apply for a personal loan.
On the other hand, if you accumulate a credit card balance that is too high, it could push your credit utilization ratio into unfavorable territory. The result? Much more damage than a single serious investigation could cause.
It’s just another reason to opt for a personal loan rather than charging your credit card with fees. This could minimize the damage to your credit score and help you avoid a scenario where it becomes difficult to borrow money when you need it.
Personal loans are not perfect. They can lead to expensive closing costs, for example, which you may prefer to avoid. But there are plenty of good reasons to choose a personal loan over a credit card, so it pays to consider them if you find yourself in a situation where you need to borrow.
The Ascent’s Best Personal Loans for 2022
The Ascent team has scoured the market to bring you a shortlist of the best personal loan providers. Whether you’re looking to pay off debt faster by lowering your interest rate or need extra money to make a big purchase, these top picks can help you reach your financial goals. Click here for the full rundown of The Ascent’s top picks.