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We live in a fast-paced world, and we often want things we can’t afford to pay for in one go. In these situations, we can use personal loans, and even save ourselves some money. Personal loans don’t require the use of collateral, which is why they are also known as unsecured loans. They can help you consolidate debt, fund a large expense, or recoup your money (e.g. repossessing a car). When considering which financing option to use when you’re in an immediate need for cash, but don’t want to repay it for long periods of time at a high interest rate, the most flexible of them all are still personal loans. Here’s when you should use it and how it can save you money.

Boost your credit score

You may be able to boost your credit score when you use a personal loan to consolidate debt. Personal loans can be obtained with interest rates that are much lower than to ones on credit cards. This allows you to save money for purchases that you plan to repay in less than five years. But, how can personal loans boost your credit score? Lenders evaluate the relationship between your spending in a given month and your credit limit (this is called “credit card utilization”). If your credit card utilization is high, you may be considered as higher risk. As reports on credit card utilization are filed monthly at your closing date, you can reduce your balance with a personal loan before the given date, and improve your credit score.

Wedding planning

If you heard the term “wedding loan”, chances are that people refer to a personal loan. This may be the best option for you, especially if you don’t have collateral, and you can get a personal loan from most financial institutions. Personal loans are often costlier than what you’ll pay for a home equity line of credit or a mortgage, but are much lower than what you’d pay by using a credit card. This is what makes personal loans a better option. Besides financial institutions, such as banks, you may consider peer-to-peer lenders, which often offer lower interest rates and various loan options. Applying for personal loans in Australia is actually quite easy, just like spending money is, and you can get approved online for several thousand dollars of loan to spend on your wedding dress, cake, or venue.

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Holiday splurging

Holidays are best paid from your savings, because there’s no interest to be charged. However, if your savings aren’t enough, you can always get a personal loan, due to lower interest rates. Personal loans let you know how much money you can borrow, therefore how much you can spend, which makes them perfect for planners. They also give you a peace of mind while relaxing on holiday, because you’ll know exactly what you’re in for after you return, as there’s certainty about payments. Personal loans are received as cash deposits, which means you’ll have cash in your wallet, and be able to splurge – go to a one-day cruise, take your kids to an aqua park, or engage in other unplanned activities.

Home improvement

There’s a home improvement project you’ve had in your mind for months, but you haven’t had the money to start the work. A personal loan for this kind of use can be a good choice if you don’t have enough equity to use for financing. It also has a longer payback term and a fixed interest rate, while monthly payments can be fit into your budget, and repaid in just a few years. The best source of funds for home improvements is, of course, your personal savings, which isn’t an option for everyone. If you want to remodel your entire home, or need to make an urgent fix (roof leak, furnace breakdown, or other maintenance issues), personal loans are faster to get and are more cost-effective in the long run.

Before you use a credit card, get mired in high-interest credit card debt, or miss a good sales opportunity, consider using a personal loan. It’s very cost-effective when your wants and needs tempt you to make purchases before you have the full purchase price.

 

Lauren Wiseman

Author: Lauren Wiseman

Lauren Wiseman is marketing specialist, business writer and entrepreneur, currently based in Melbourne. She helps clients grow their personal and professional brands in fast-changing and demanding market environment. Covering finance and investment topics, Lauren strongly believes in holistic approach to business.

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