Some would have you believe that being in a position to have to take out a personal loan is bad financial planning or simply “financially irresponsible”. FJP Investment do not believe this is the case at all.
Sure, where possible, you should aim to budget well to try and ensure a loan is not needed, however, life happens! It is nearly impossible to begin to try and budget for life’s unexpected expenses, think a trip to the vets or a sudden hospital trip.
It is essential to understand also that financially responsible individuals use loans in an educated way to manage expenses in a better way, with most businesses relying on loans in some capacity. The idea that financial debt can never lead to something good is simply incorrect, you just have to know how to manage it.
A personal credit, when utilized correctly, has its advantages. Here, we look at the specific advantages to obtaining personal credit.
Smaller loan amounts
Most banks do not offer loans for smaller amounts of money. For many, small loans are all that is necessary, so it can be frustrating to hear from your bank that you will need to take out a greater amount, something that many people fall into the trap of doing.
Secured credits offer customers the chance of taking out these smaller amounts. A number of companies offer loans from as little as $50! Many of these companies also do not require you to have borrowed before or have exceptional credit scores.
Taking advantage of this ability to take out smaller loans is something that consumers should focus on. However, you have to be careful to review the level of interest that is accompanied with some of these loans.
A number of loans can have fluctuating levels of interest based on market trends. Borrowers value stability when taking out credit and should be aware of the fixed interest on the credit, calculating how long they should take to pay this off.
Many of the loans offered by conventional lenders, as well as credit offered by banks in the form of credit cards, are subject to interest fluctuations. Often consumers feel they have a good grasp on the level of repayments and are consistently paying off this, but then interest fluctuates often due to market changes or hidden terms and end up paying considerably more interest than they had planned.
Personal loans do not fall under this bracket, however. Generally speaking, personal credit will have a fixed rate of interest, with many having a pre-requisite end date to the credit agreement. For the sake of financial planning, a fixed rate of interest with your loan will be of great value.
No collateral is needed
Conventional lenders such as banks offering loans usually require collateral in the form of a security or asset to qualify for the credit. With personal loans, there is no need for this, although there are consequences to defaulting on personal credit, you do not lose any of your valuable assets.
In fact, this goes to explain why interest rates tend to be higher for personal loans. The borrower increases the interest to cover the higher level of risk without the use of collateral as part of the loan.
Although the amount of interest you are likely to pay back will be higher, if you are in a position where there is even the smallest chance you will not fully pay back the credit, this is a safer option. Of course, paying back the loan should always be a priority.
In most cases, access to the money is instant with a personal loan. When you compare this to the difficultly faced in obtaining a loan from a conventional provider, the time difference here can be all the difference when you consider the repercussions of not being able to pay the other expenses.
Bills can often creep up on us, and if we are faced with one that is larger than we have anticipated, we need the money in a timely manner to pay the debt itself.
The time required to provide the necessary documentation and with the stringent verification process often puts the borrower into a more difficult position when dealing with traditional lenders. So, the opportunity for instant money, albeit with a higher level of interest, is beneficial for the borrower in almost all cases.
The duration can be flexible
To align with the borrower’s ability to plan financially, prior to taking the loan, the duration can generally speaking be as long or as short as you need it to be. You can even work with modern borrowers to calculate the best duration of your loan based on your expected income.
To get the best out of your loan, make sure to plan well. Work out if the repayments will work for you, and how they will work out the best for you. Be disciplined and use the right company to borrow money and you might find it to be a greater experience than you are used to with traditional lenders.