Sometimes borrowing credit may become inevitable given a certain financial crunch. At such times, availing of funds through personal loan is the most feasible option. It helps fund any of the personal expenses.
Individuals may use the disbursed loan amount for numerous reasons. Some individuals use it to fund their child’s education, to finance wedding expenditure, or to take an international vacation. Some may even borrow to make a further investment.
Following are three effective ways of using a personal loan.
1. To pay off credit card debt
Missing out on your credit card payments may get you into a debt trap. The interest rate charged on non-payment of credit card dues is exorbitantly high. Failure to make payments only leads to higher finance charges. It is, therefore, advisable to opt for a personal loan to consolidate your credit card dues. As personal loans have a lower rate of interest and pre-defined loan tenure, you may systematically become debt-free by making regular EMI payments. Besides, you may also save money through lower interest rates. However, opt for a personal loan to pay your credit card dues only if your financial position allows you to make regular repayments.
2. To enhance your credit score
It is a popular belief that borrowing a personal loan may negatively affect your credit score. However, this is not completely true. One of the main factors determining your score is your repayment history. If you make regular repayments without any defaults, you may actually boost your score. By continuing to make payments on time, you demonstrate that you are able to handle debt responsibly.
3. To meet personal expenses
A personal loan is an effective option for availing of finance for personal use. It is a great strategy to invest in an appreciating asset. For example, borrowing a student loan to fund education expenses will assist in increasing your future earning power. Similarly, you may also use the received funds to own a home, as real estate is an appreciating asset.
Additionally, you may also use the loan to renovate your home, fund a wedding, or take a vacation. Remember, it is necessary to borrow only in case of dire need of cash, or else you may end up with debt obligation.
It is advisable to borrow a loan only for necessary expenses. Non-payment of EMIs will only add to your debt in the long run. Hence, make a wise financial decision of borrowing only in case of urgent requirement. Also, take into consideration various details of the loan, like personal loan eligibility process, interest rates, and fees and charges, so as to land the best deal.