There are plenty of reasons why we will need to borrow money in order to finance our current and future goals. In this case, then it’s a good thing then that there are a variety of loans and credit plans to meet these specific needs. While some times, it is fairly easy to determine which loan is necessary for which type of financing, a mortgage for example, other times it is not always as clear as to which loan we need to serve which purpose – or if it is even good idea to take out that loan at that point in time.
Now with that being said, one type of loan that can present more of a grey area when it comes to determining if a certain loan will be a good fit – is a personal loan. In all reality, it is fairly simple to access a person loan – as lots of times they are lower amounts than what you would require to mortgage your home. However personal loans are generally used for a variety of purposes and therefore may need to still be weighed with caution and of course foreword thinking.
All in all, if you are looking to take out a personal loan of any kind, it is best to know when is an ideal time to apply for a personal loan. Here are some factors and ideal situations which are considered to be the right time to apply for a personal loan.
When Paying off Another High Interest Loan
While taking out another loan in order to pay off another one may at first not seem like it will help you pay down any of your debts, if one of your debts has a really high interest rate and as a result you are having trouble paying it down – then by taking out a lower interest rate personal loan, you could use this money to pay down the one with the much higher rate.
Then of course, you will be left paying down the personal loan, however you may be in a much better position to pay down this loan because it has lower interest and in turn you are more likely to be able to pay it down at a faster rate. Additionally, with a good payment history from being able to pay down both loans more efficiently, you can also increase your credit score on top of everything else.
When Consolidating Your Debts (Credit Card Debt)
If you have debts that are pilling up and you also have multiple loans that are posing quite a financial hardship, then a personal loan could be used as a debt consolidation loan. Here you can combine all of your loans into one single loan and ease some of your financial stress. With consolidation loans typically carry lower interest rate, this can help you pay down your overall debt load at a more successful pace as well.
This personal loan method can be particularly useful when it comes to paying down multiple credit cards. With high balances on more than one of your credit cards, it is also likely that one or more of them are likely to also carry a high rate and a consolidated loan will also mean you will be paying less in interest charges overall.
This personal loan can also help you improve your payment history and your credit score since you are moving from multiple monthly payments down to one and your ongoing payments, in reality will become much more manageable.
When You Need to Pay for Higher Education
If you have come to a time in your life where you will require to pay for your higher education, then a personal loan can come in handy as a method of securing the necessary funds to pay your tuition bills. While educational institutions typically require that students make a large payment at the beginning of each school term, it is then likely that you will be tasked to make upfront payments in the form of a large balance, perhaps well into the thousand dollar range and higher.
A personal loan can effectively help you meet these financial demands and help you pursue your education at the same time. Many financial institutions will offer personal loans that are geared towards students as it is well known that higher education can certainly be expensive and students of any age may require this type assistance.
For students who are beginning their credit journey, these loans can be a good method of building a credit history – and for more mature students this type of credit can help them manage their current credit history as well as work at maintaining a good credit score.
There of course will be times, when you need to consider whether or not a personal loan will a) help you meet your current needs and b) whether or not you can realistically manage this loan.
Ultimately, you want to really give some thought to whether or not a personal loan will serve its purpose and help you achieve your financial goals without creating more of a problem than before. Ideal personal loan scenarios should give you an edge over your current financial expenses and the key is to also be able to utilize them in the most effective and responsible manner over time.
